-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O69cITG5GPlHGaBVvYyDvd6PCxxW4fk8+csW1EDdzL9E8MNugpfHWveHvVqxUGSg LozCPb2LvgeFI0nInBdoqw== 0000004962-04-000191.txt : 20041025 0000004962-04-000191.hdr.sgml : 20041025 20041025150537 ACCESSION NUMBER: 0000004962-04-000191 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041025 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20041025 DATE AS OF CHANGE: 20041025 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EXPRESS CO CENTRAL INDEX KEY: 0000004962 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 134922250 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07657 FILM NUMBER: 041093854 BUSINESS ADDRESS: STREET 1: 200 VESEY STREET STREET 2: 50TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 2126402000 MAIL ADDRESS: STREET 1: 200 VESEY STREET STREET 2: 50TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 8-K 1 earningsthird.txt 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): October 25, 2004 AMERICAN EXPRESS COMPANY (Exact name of registrant as specified in its charter) New York 1-7657 13-4922250 - ----------------------------- ------------------------ ------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation Identification No.) or organization) 200 Vesey Street, World Financial Center New York, New York 10285 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 640-2000 --------------------------------------------------- (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): Written communications pursuant to Rule 425 under the Securities Act - --- (17 CFR 230.425) Soliciting material pursuant to Rule 14a-12 under the Exchange Act - --- (17 CFR 240.14a-12) Pre-commencement communications pursuant to Rule 14d-2(b) under the - --- Exchange Act (17 CFR 240.14d-2(b)) Pre-commencement communications pursuant to Rule 13e-4(c) under the - --- Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND ITEM 7.01 REGULATION FD DISCLOSURE. The following information is furnished under Item 2.02 - Results of Operations and Financial Condition and Item 7.01 - Regulation FD Disclosure: On October 25, 2004, American Express Company issued a press release announcing its financial results for the third quarter of 2004, as well as certain other information regarding the extension of its co-brand, Membership Rewards and merchant partnerships with Delta Air Lines and its commitment to prepay $500 million for the future purchases of Delta SkyMiles Rewards points and to provide a $100 million loan to Delta as part of a new credit facility that is currently being negotiated with other lenders. A copy of such press release is attached to this report as Exhibit 99.1 and is hereby incorporated herein by reference. In addition, in conjunction with the announcement of its financial results, American Express Company distributed additional financial information relating to its 2004 third quarter financial results and a 2004 Third Quarter Earnings Supplement. Such additional financial information and the 2004 Third Quarter Earnings Supplement are attached to this report as Exhibits 99.2 and 99.3, respectively, and each is hereby incorporated by reference. EXHIBIT 99.1 Press Release, dated October 25, 2004, of American Express Company announcing its financial results for the third quarter of 2004 and certain other information. 99.2 Additional financial information relating to the financial results of American Express Company for the third quarter of 2004. 99.3 2004 Third Quarter Earnings Supplement of American Express Company. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AMERICAN EXPRESS COMPANY (REGISTRANT) By: /s/ Stephen P. Norman Name: Stephen P. Norman Title: Secretary DATE: October 25, 2004 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Press Release, dated October 25, 2004, of American Express Company announcing its financial results for the third quarter of 2004 and certain other information. 99.2 Additional financial information relating to the financial results of American Express Company for the third quarter of 2004. 99.3 2004 Third Quarter Earnings Supplement of American Express Company. EX-99.1 P RELEASE 2 exhibit99_1wtables.txt EXHIBIT 99.1 EXHIBIT 99.1 News Release News Release News Release News Release [LOGO OF AMERICAN EXPRESS] Contacts: Frank Vaccaro Michael J. O'Neill 212-640-3327 212-640-5951 frank.vaccaro@aexp.com mike.o'neill@aexp.com FOR IMMEDIATE RELEASE - -------------------------------------------------------------------------------- AMERICAN EXPRESS REPORTS RECORD QUARTERLY EARNINGS EARNINGS PER SHARE RISE 17 PERCENT RESULTS REFLECT STRONG GROWTH IN CARDMEMBER BILLINGS AND LENDING AS WELL AS EXCELLENT CREDIT QUALITY AMERICAN EXPRESS EXTENDS PARTNERSHIP AGREEMENTS AND ANNOUNCES ADVANCE TO DELTA AIR LINES
(Dollars in millions, except per share amounts) Quarters Ended Percentage Nine Months Ended Percentage September 30, Inc/(Dec) September 30, Inc/(Dec) ------------- --------- ------------- --------- 2004 2003 2004 2003 ---- ---- ---- ---- Revenues $ 7,202 $ 6,419 12% $ 21,370 $ 18,798 14% Income Before Accounting Change $ 879 $ 770 14% $ 2,620 $ 2,224 18% Net Income $ 879 $ 770 14% $ 2,549* $ 2,224 15% Earnings Per Common Share - Basic: Income Before Accounting Change $ 0.70 $ 0.60 17% $ 2.07 $ 1.73 20% Net Income $ 0.70 $ 0.60 17% $ 2.02* $ 1.73 17% Earnings Per Common Share - Diluted: Income Before Accounting Change $ 0.69 $ 0.59 17% $ 2.03 $ 1.71 19% Net Income $ 0.69 $ 0.59 17% $ 1.98* $ 1.71 16% Average Common Shares Outstanding Basic 1,251 1,278 (2%) 1,264 1,287 (2%) Diluted 1,275 1,297 (2%) 1,289 1,298 (1%) Return on Average Total Shareholders' Equity** 21.5% 20.4% - 21.5% 20.4% - - ------------------------------------------- -------------- ----------- --------------- -------------- --------------- --------------
* Reflects a $109 million non-cash pre-tax charge ($71 million after-tax), or $0.05 per share on both a basic and diluted basis, relating to the January 1, 2004, adoption of Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and Separate Accounts" (SOP 03-1). ** Computed on a trailing 12-month basis using total Shareholders' Equity as included in the Consolidated Financial Statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). -more- New York - October 25, 2004 - American Express Company today reported record net income of $879 million for the third quarter, up 14 percent from $770 million a year ago. Diluted earnings per share (EPS) rose to $0.69, up 17 percent from $0.59 a year ago. The company's return on equity was 21.5 percent. Revenues totaled $7.2 billion, up 12 percent from $6.4 billion a year ago. This growth reflects record spending on American Express cards, higher cardmember lending balances and increased travel sales. It also reflects increased revenue from higher client asset levels and stronger financial advisor sales. Consolidated expenses totaled $5.9 billion, up 11 percent from $5.4 billion a year ago. This increase reflects higher expenses for marketing, promotion, rewards and cardmember services, human resources and other operating expenses. "We are in an excellent competitive position and continue to generate broad-based growth in cardmember spending in the retail, everyday spending, travel and entertainment sectors," said Kenneth I. Chenault, Chairman and CEO. "Credit quality was excellent throughout the company and reserve levels remained very strong. "Revenue growth this quarter represented a very attractive return on the investments we've made during the past few years. Those investments helped us to grow our card business with consumers, small businesses and corporations. They also helped us to increase financial advisor sales and grow client assets, despite continued uncertainty in the markets," Mr. Chenault said. "Our growth opportunities are excellent, and to help ensure that we have the resources to take full advantage of them, we plan to continue reengineering initiatives for the remainder of this year and next." THIRD QUARTER 2004 RESULTS The third quarter revenue growth reflected increases of 13 percent at Travel Related Services (TRS), 12 percent at American Express Financial -2- Advisors (AEFA) and 3 percent at American Express Bank (AEB). More specifically: o Discount revenue increased 14 percent, reflecting a 16 percent rise in cardmember spending. o Management and distribution fees rose 21 percent due to higher asset and sales levels at AEFA. o Net finance charge revenue increased 18 percent, reflecting continued strong growth in the cardmember lending portfolio. o Travel commissions and fees increased 22 percent as a result of higher travel sales. The acquisitions of Threadneedle Asset Management and Rosenbluth International in the second half of last year contributed approximately 2 percentage points to the company's overall revenue growth. Third quarter expenses reflected increases of 12 percent at both TRS and AEFA, partially offset by a slight decrease at AEB. More specifically: o Marketing, promotion, rewards and cardmember services expenses increased 29 percent, driven by a similar 29 percent increase at TRS. o Human resources expense increased 15 percent primarily as a result of the business acquisitions in late 2003, increased management incentives costs, including an additional year of incremental stock-based compensation expenses, merit increases and employee benefits. o Other operating expenses rose 7 percent, including a 27 percent increase at AEFA and a 3 percent increase at TRS. These items were partially offset by: o A 2 percent decline in total provision for losses as credit quality remained very strong in TRS' charge and lending portfolio. The decline is primarily due to a 16 percent decrease in the lending provision, offset, in part, by higher other provision expense at TRS. -3- o A 9 percent decrease in interest expense largely due to lower funding costs. TRAVEL RELATED SERVICES (TRS) reported quarterly net income of $726 million, up 20 percent from $606 million a year ago. THE FOLLOWING DISCUSSION OF THIRD QUARTER RESULTS PRESENTS TRS SEGMENT RESULTS ON A "MANAGED BASIS," AS IF THERE HAD BEEN NO CARDMEMBER LENDING SECURITIZATION TRANSACTIONS. THIS IS THE BASIS USED BY MANAGEMENT TO EVALUATE OPERATIONS AND IS CONSISTENT WITH INDUSTRY PRACTICE. FOR FURTHER INFORMATION ABOUT MANAGED BASIS AND RECONCILIATION OF GAAP AND MANAGED TRS INFORMATION, SEE THE "MANAGED BASIS" SECTION BELOW. THE AEFA, AEB AND CORPORATE AND OTHER SECTIONS BELOW ARE PRESENTED ON A GAAP BASIS. Total net revenues rose 11 percent from the year-ago period, reflecting continued strong growth in spending and borrowing on American Express Cards and higher travel sales. Record cardmember spending contributed to a 14 percent rise in discount revenue. The spending increase reflected higher average cardmember spending, the continued benefit of rewards programs and a net addition of 4 million cards-in-force. The higher business volumes also reflected growth in the retail, everyday spending, travel and entertainment categories. The benefits of higher cardmember spending were partially offset by a slightly lower average discount rate. Travel commissions and fees grew 22 percent, reflecting 23 percent growth in travel sales. These increases are primarily the result of the Rosenbluth acquisition. Other commissions and fees rose 21 percent, reflecting higher card-related business volumes. Net finance charge revenue increased 4 percent, reflecting 8 percent growth in average worldwide lending balances partially offset by a decline in the portfolio yield. Net card fees increased 2 percent primarily as a result of a higher number of cards-in-force. Total expenses increased 10 percent, reflecting higher marketing, promotion, rewards and cardmember services expenses, greater human resources expenses and higher other operating costs. These increases were partially -4- offset by lower provision for losses, a decline in charge card interest expense and the benefits of cost-control initiatives. Marketing, promotion, rewards and cardmember services expenses increased 28 percent over the year-ago period. This growth reflected increased rewards costs, primarily due to strong volume growth, a higher redemption rate and the continued increase in cardmember loyalty program participation, as well as the company's continued focus on business-building activities. Human resources expense increased 15 percent due to merit increases, higher management incentives, including an additional year of incremental stock-based compensation expenses, and employee benefits, in addition to the Rosenbluth acquisition in late 2003. Other operating expenses increased 3 percent. Credit quality remained strong in both the charge and lending portfolios. The total provision for losses declined 3 percent, reflecting a decline of 13 percent in the lending provision and a 3 percent decrease in the charge card provision. Other provisions increased, primarily reflecting a reconciliation of securitization-related lending receivable accounts, which resulted in a charge of $115 million (net of $32 million of reserves previously provided) for balances accumulated over the prior five years as a result of a computational error. The amount of the error was immaterial to any of the quarters in which it occurred. In addition, other provisions were favorably impacted by a reduction in merchant-related reserves of approximately $60 million that reflects modifications in certain merchant agreements to mitigate loss exposure and ongoing favorable credit experience with merchants. Charge card interest expense decreased 6 percent largely due to lower funding costs, which were partially offset by higher average receivable balances. -5- AMERICAN EXPRESS FINANCIAL ADVISORS (AEFA) reported third quarter net income of $186 million, down 6 percent from $197 million a year ago. On a pre-tax basis, AEFA's quarterly income rose 14 percent from year-ago levels. Total revenues increased 12 percent. Management and distribution fees increased 21 percent, reflecting a significant rise in average assets under management and stronger product sales. This improvement in average assets under management reflected the September 30, 2003 Threadneedle acquisition, higher average equity values and net asset inflows. Net investment income increased 5 percent from year-ago levels, including net investment gains in the current quarter versus net losses a year ago. Other revenues rose from last year, reflecting strong performance in the property-casualty business. Total expenses increased 12 percent as a result of higher human resources and other operating expenses, partially offset by a decline in provisions for losses and benefits. Provisions for losses and benefits decreased 3 percent, reflecting lower annuity and insurance interest crediting rates, partially offset by higher levels of annuities, insurance and certificate products. Human resources and other operating expenses rose a combined 22 percent from year-ago levels. The increase reflected the Threadneedle acquisition, higher sales compensation-related expenses and costs related to various securities industry regulatory and legal matters. These increases were partially offset by a net $24 million pre-tax benefit resulting from AEFA's annual deferred acquisition costs (DAC) review. AEFA conducts a comprehensive review of its DAC assumptions and related practices every third quarter. The effective tax rate rose primarily as a result of a tax benefit in the prior year. -6- AMERICAN EXPRESS BANK (AEB) reported net income for the third quarter of $32 million, up 18 percent from $27 million a year ago. AEB's results included substantially lower provision for losses, reflecting lower loan volumes in the unsecured consumer-lending portfolio together with continued improvement in bankruptcy-related write-offs. The results also reflected higher commissions and fees in the financial institutions and private banking businesses, partially offset by lower net interest income from lower consumer loans, as well as higher operating expenses. CORPORATE AND OTHER reported third quarter net expenses of $65 million in 2004 compared with $60 million in 2003. The results reflected increased corporate investment spending on compliance and technology projects. PARTNERSHIP AGREEMENTS WITH DELTA AIR LINES Separately, American Express announced that it has signed agreements with Delta Air Lines to extend its co-brand, Membership Rewards and merchant partnerships. The agreements will extend these partnerships into the next decade. As part of the agreements, American Express would prepay $500 million for the future purchases of Delta SkyMiles rewards points. The company would also provide a $100 million loan to Delta as part of a new credit facility currently being negotiated with other lenders. The prepayment would have a three-year term, and both the prepayment and the loan would be fully-collateralized by a pool of assets and are subject to certain conditions. The company's decision to participate in Delta's restructuring program reflects its long-term partnership with the airline through its travel business, co-branded cards and the Membership Rewards program. While American Express' Delta SkyMiles Credit Card co-brand portfolio accounts for less than 10 percent of the company's total worldwide billed business and less than 15 percent of managed worldwide lending receivables, it represents a very attractive, high-spending, loyal cardmember base with excellent credit quality. American Express continues to believe this portfolio represents an attractive growth opportunity. *** -7- MANAGED BASIS - TRS Managed basis means the presentation assumes there have been no securitization transactions, i.e. all securitized cardmember loans and related income effects are reflected as if they were in the company's balance sheet and income statements, respectively. The company presents TRS information on a managed basis because that is the way the company's management views and manages the business. Management believes that a full picture of trends in the company's cardmember lending business can only be derived by evaluating the performance of both securitized and non-securitized cardmember loans. Asset securitization is just one of several ways for the company to fund cardmember loans. Use of a managed basis presentation, including non-securitized and securitized cardmember loans, presents a more accurate picture of the key dynamics of the cardmember lending business, avoiding distortions due to the mix of funding sources at any particular point in time. For example, irrespective of the funding mix, it is important for management and investors to see metrics, such as changes in delinquencies and write-off rates, for the entire cardmember lending portfolio because they are more representative of the economics of the aggregate cardmember relationships and ongoing business performance and trends over time. It is also important for investors to see the overall growth of cardmember loans and related revenue and changes in market share, which are all significant metrics in evaluating the company's performance and which can only be properly assessed when all non-securitized and securitized cardmember loans are viewed together on a managed basis. The Consolidated Section of this press release and attachments provide the GAAP presentation for items described on a managed basis. *** -8- The following table reconciles the GAAP-basis TRS income statements to the managed-basis information.
Travel Related Services Selected Financial Information Effect of Securitizations (unaudited) ---------------------------------------------------- Securitization (preliminary, millions) GAAP Basis (unaudited) Effect Managed Basis --------------------------------- ------------------ --------------------------------- Percentage Percentage Quarters Ended September 30, 2004 2003 Inc/(Dec) 2004 2003 2004 2003 Inc/(Dec) ----------- --------------------- ------------------ --------------------------------- Net revenues: Discount revenue $ 2,535 $ 2,221 14% Lending: Finance charge revenue 714 592 21 $ 573 $ 585 $ 1,287 $ 1,177 9% Interest expense 152 116 32 108 74 260 190 38 -------- ------ ---- ----- ------- ------- Net finance charge revenue 562 476 18 465 511 1,027 987 4 Net card fees 474 462 2 Travel commissions and fees 426 349 22 Other commissions and fees 563 465 21 53 45 616 510 21 Travelers Cheque investment income 96 90 7 Securitization income, net 295 301 (2) (295) (301) - - - Other revenues 411 394 5 -------- ------ ---- ----- ------- ------- Total net revenues 5,362 4,758 13 223 255 5,585 5,013 11 Expenses: Marketing, promotion, rewards and cardmember services 1,280 994 29 (6) - 1,274 994 28 Provision for losses and claims: Charge card 206 213 (3) Lending 233 279 (16) 232 255 465 534 (13) Other 84 31 # -------- ------ ---- ----- ------- ------- Total 523 523 - 232 255 755 778 (3) Charge card interest expense 174 186 (6) Human resources 1,074 938 15 Other operating expenses 1,264 1,225 3 (3) - 1,261 1,225 3 -------- ------ ---- ----- ------- ------- Total expenses 4,315 3,866 12 $ 223 $ 255 $ 4,538 $ 4,121 10 -------- ------ ---- ----- ------- ------- Pre-tax income 1,047 892 17 Income tax provision 321 286 12 -------- ------ Net income $ 726 $ 606 20 ======== ======
# - Denotes a variance of more than 100% American Express Company (www.americanexpress.com), founded in 1850, is a global travel, financial and network services provider. *** -9- Note: The 2004 Third Quarter Earnings Supplement, as well as CFO Gary Crittenden's presentation from the investor conference call referred to below, will be available today on the American Express web site at http://ir.americanexpress.com. An investor conference call to discuss third quarter earnings results, operating performance and other topics that may be raised during the discussion will be held at 5:00 p.m. (ET) today. Live audio of the conference call will be accessible to the general public on the American Express web site at http://ir.americanexpress.com. A replay of the conference call also will be available today at the same web site address. *** THIS RELEASE INCLUDES FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "OPTIMISTIC," "INTEND," "PLAN," "AIM," "WILL," "MAY," "SHOULD," "COULD," "WOULD," "LIKELY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO: THE COMPANY'S ABILITY TO IMPROVE ITS OPERATING EXPENSE TO REVENUE RATIO BOTH IN THE SHORT-TERM AND OVER TIME, WHICH WILL DEPEND IN PART ON THE EFFECTIVENESS OF REENGINEERING AND OTHER COST-CONTROL INITIATIVES, AS WELL AS FACTORS IMPACTING THE COMPANY'S REVENUES; THE COMPANY'S ABILITY TO COST EFFECTIVELY MANAGE AND EXPAND CARDMEMBER BENEFITS, INCLUDING CONTAINING THE GROWTH OF ITS MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES; THE COMPANY'S ABILITY TO ACCURATELY ESTIMATE THE PROVISION FOR THE COST OF THE MEMBERSHIP REWARDS PROGRAM; THE COMPANY'S ABILITY TO GROW ITS BUSINESS AND MEET OR EXCEED ITS RETURN ON SHAREHOLDERS' EQUITY TARGET BY REINVESTING APPROXIMATELY 35% OF ANNUALLY-GENERATED CAPITAL, AND RETURNING APPROXIMATELY 65% OF SUCH CAPITAL TO SHAREHOLDERS, OVER TIME, WHICH WILL DEPEND ON THE COMPANY'S ABILITY TO MANAGE ITS CAPITAL NEEDS AND THE EFFECT OF BUSINESS MIX, ACQUISITIONS AND RATING AGENCY REQUIREMENTS; THE ABILITY OF THE COMPANY TO GENERATE SUFFICIENT REVENUES FOR EXPANDED INVESTMENT SPENDING AND TO ACTUALLY SPEND SUCH FUNDS TO THE EXTENT AVAILABLE, AND THE ABILITY TO CAPITALIZE ON SUCH INVESTMENTS TO IMPROVE BUSINESS METRICS; CREDIT RISK RELATED TO CONSUMER DEBT, BUSINESS LOANS, MERCHANT BANKRUPTCIES AND OTHER CREDIT EXPOSURES BOTH IN THE U.S. AND INTERNATIONALLY; VOLATILITY IN THE VALUATION ASSUMPTIONS FOR THE INTEREST-ONLY (I/O) STRIP RELATING TO TRS' LENDING SECURITIZATIONS; FLUCTUATION IN THE EQUITY AND FIXED INCOME MARKETS, WHICH CAN AFFECT THE AMOUNT AND TYPES OF INVESTMENT PRODUCTS SOLD BY AEFA, THE MARKET VALUE OF ITS MANAGED ASSETS, AND MANAGEMENT, DISTRIBUTION AND OTHER FEES RECEIVED BASED ON THE VALUE OF THOSE ASSETS; AEFA'S ABILITY TO RECOVER DEFERRED ACQUISITION COSTS (DAC), AS WELL AS THE TIMING OF SUCH DAC AMORTIZATION, IN CONNECTION WITH THE SALE OF ANNUITY, INSURANCE AND CERTAIN MUTUAL FUND PRODUCTS; CHANGES IN ASSUMPTIONS RELATING TO DAC, WHICH COULD IMPACT THE AMOUNT OF DAC AMORTIZATION; THE ABILITY TO IMPROVE INVESTMENT PERFORMANCE IN AEFA'S BUSINESSES, INCLUDING ATTRACTING AND RETAINING HIGH-QUALITY PERSONNEL; THE SUCCESS, TIMELINESS AND FINANCIAL IMPACT, INCLUDING COSTS, COST SAVINGS AND OTHER BENEFITS INCLUDING INCREASED REVENUES, OF REENGINEERING INITIATIVES BEING IMPLEMENTED OR CONSIDERED BY THE COMPANY, INCLUDING COST MANAGEMENT, STRUCTURAL AND STRATEGIC MEASURES SUCH AS VENDOR, PROCESS, FACILITIES AND OPERATIONS CONSOLIDATION, OUTSOURCING (INCLUDING, AMONG OTHERS, TECHNOLOGIES OPERATIONS), RELOCATING CERTAIN FUNCTIONS TO LOWER-COST OVERSEAS LOCATIONS, MOVING INTERNAL AND EXTERNAL FUNCTIONS TO THE INTERNET TO SAVE COSTS, AND PLANNED STAFF REDUCTIONS RELATING TO CERTAIN OF SUCH REENGINEERING ACTIONS; THE ABILITY TO CONTROL AND MANAGE OPERATING, INFRASTRUCTURE, ADVERTISING AND PROMOTION AND OTHER EXPENSES AS BUSINESS EXPANDS OR CHANGES, INCLUDING BALANCING THE NEED FOR LONGER-TERM INVESTMENT SPENDING; THE POTENTIAL NEGATIVE EFFECT ON THE COMPANY'S BUSINESSES AND INFRASTRUCTURE, INCLUDING INFORMATION TECHNOLOGY, OF TERRORIST ATTACKS, DISASTERS OR OTHER CATASTROPHIC EVENTS IN THE FUTURE; THE IMPACT ON THE COMPANY'S BUSINESSES RESULTING FROM CONTINUING GEOPOLITICAL UNCERTAINTY; THE OVERALL LEVEL OF CONSUMER CONFIDENCE; CONSUMER AND BUSINESS SPENDING ON THE COMPANY'S TRAVEL RELATED SERVICES PRODUCTS, PARTICULARLY CREDIT AND CHARGE CARDS AND GROWTH IN CARD LENDING BALANCES, WHICH DEPEND IN PART ON THE ABILITY TO ISSUE NEW AND ENHANCED CARD PRODUCTS AND INCREASE REVENUES FROM SUCH PRODUCTS, ATTRACT NEW CARDHOLDERS, CAPTURE A GREATER SHARE OF EXISTING CARDHOLDERS' SPENDING, SUSTAIN PREMIUM DISCOUNT RATES ON ITS CARD PRODUCTS IN LIGHT OF MARKET PRESSURES, INCREASE MERCHANT COVERAGE, RETAIN CARDMEMBERS AFTER LOW INTRODUCTORY LENDING RATES HAVE EXPIRED, AND EXPAND THE GLOBAL NETWORK SERVICES BUSINESS; THE TRIGGERING OF OBLIGATIONS TO MAKE PAYMENTS TO CERTAIN CO-BRAND PARTNERS, MERCHANTS, VENDORS AND CUSTOMERS UNDER CONTRACTUAL ARRANGEMENTS WITH SUCH PARTIES UNDER CERTAIN CIRCUMSTANCES; AEFA'S ABILITY TO DEVELOP AND ROLL OUT NEW AND ATTRACTIVE PRODUCTS TO CLIENTS IN A TIMELY MANNER AND EFFECTIVELY MANAGE THE ECONOMICS IN SELLING A GROWING VOLUME OF NON-PROPRIETARY MUTUAL FUNDS AND OTHER RETAIL FINANCIAL PRODUCTS TO CLIENTS; SUCCESSFULLY CROSS-SELLING FINANCIAL, TRAVEL, CARD AND OTHER PRODUCTS AND SERVICES TO THE COMPANY'S CUSTOMER BASE, BOTH IN THE UNITED STATES AND INTERNATIONALLY; A DOWNTURN IN THE COMPANY'S BUSINESSES AND/OR NEGATIVE CHANGES IN THE COMPANY'S AND ITS SUBSIDIARIES' CREDIT RATINGS, -10- WHICH COULD RESULT IN CONTINGENT PAYMENTS UNDER CONTRACTS, DECREASED LIQUIDITY AND HIGHER BORROWING COSTS; FLUCTUATIONS IN INTEREST RATES, WHICH IMPACT THE COMPANY'S BORROWING COSTS, RETURN ON LENDING PRODUCTS AND SPREADS IN THE INSURANCE, ANNUITY AND INVESTMENT CERTIFICATE BUSINESSES; CREDIT TRENDS AND THE RATE OF BANKRUPTCIES, WHICH CAN AFFECT SPENDING ON CARD PRODUCTS, DEBT PAYMENTS BY INDIVIDUAL AND CORPORATE CUSTOMERS AND BUSINESSES THAT ACCEPT THE COMPANY'S CARD PRODUCTS AND RETURNS ON THE COMPANY'S INVESTMENT PORTFOLIOS; BANKRUPTCIES, RESTRUCTURINGS OR SIMILAR EVENTS AFFECTING THE AIRLINE OR ANY OTHER INDUSTRY REPRESENTING A SIGNIFICANT PORTION OF TRS' BILLED BUSINESS, INCLUDING ANY POTENTIAL NEGATIVE EFFECT ON PARTICULAR CARD PRODUCTS AND SERVICES AND BILLED BUSINESS GENERALLY THAT COULD RESULT FROM THE ACTUAL OR PERCEIVED WEAKNESS OF KEY BUSINESS PARTNERS IN SUCH INDUSTRIES; RISKS ASSOCIATED WITH THE COMPANY'S COMMITMENT TO DELTA AIR LINES TO PREPAY $500 MILLION FOR THE FUTURE PURCHASES OF DELTA SKYMILES REWARDS POINTS AND TO LOAN $100 MILLION TO DELTA; FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES; POLITICAL OR ECONOMIC INSTABILITY IN CERTAIN REGIONS OR COUNTRIES, WHICH COULD AFFECT LENDING AND OTHER COMMERCIAL ACTIVITIES, AMONG OTHER BUSINESSES, OR RESTRICTIONS ON CONVERTIBILITY OF CERTAIN CURRENCIES; CHANGES IN LAWS OR GOVERNMENT REGULATIONS; THE COSTS AND INTEGRATION OF ACQUISITIONS; AND OUTCOMES AND COSTS ASSOCIATED WITH LITIGATION AND COMPLIANCE AND REGULATORY MATTERS. A FURTHER DESCRIPTION OF THESE AND OTHER RISKS AND UNCERTAINTIES CAN BE FOUND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, AND ITS OTHER REPORTS FILED WITH THE SEC. -11- All information in the following tables is presented on a basis prepared in accordance with U.S. generally accepted accounting principles (GAAP), unless otherwise indicated. (Preliminary) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended Nine Months Ended September 30, September 30, ----------------------- Percentage ------------------------- Percentage 2004 2003 Inc/(Dec) 2004 2003 Inc/(Dec) ---------- ---------- ---------- ---------- ---------- ---------- Revenues Discount revenue $ 2,535 $ 2,221 14.1 % $ 7,432 $ 6,349 17.1 % Net investment income 766 730 4.9 2,292 2,277 0.6 Management and distribution fees 732 603 21.2 2,261 1,692 33.6 Cardmember lending net finance charge revenue 562 476 18.1 1,664 1,511 10.1 Net card fees 474 462 2.5 1,418 1,368 3.7 Travel commissions and fees 426 349 22.0 1,311 1,062 23.5 Other commissions and fees 574 486 18.2 1,668 1,429 16.7 Insurance and annuity revenues 389 345 12.8 1,131 1,000 13.2 Securitization income, net 295 301 (1.9) 807 812 (0.6) Other 449 446 0.8 1,386 1,298 6.8 ---------- ---------- ---------- ---------- Total revenues 7,202 6,419 12.2 21,370 18,798 13.7 ---------- ---------- ---------- ---------- Expenses Human resources 1,796 1,559 15.2 5,414 4,625 17.0 Marketing, promotion, rewards and cardmember services 1,314 1,016 29.3 3,611 2,735 32.0 Provision for losses and benefits 1,054 1,080 (2.3) 3,156 3,265 (3.3) Interest 216 239 (9.4) 629 700 (10.1) Other operating expenses 1,568 1,463 7.2 4,792 4,318 11.0 Restructuring charges - (2) - - (2) - ---------- ---------- ---------- ---------- Total expenses 5,948 5,355 11.1 17,602 15,641 12.5 ---------- ---------- ---------- ---------- Pretax income before accounting change 1,254 1,064 17.7 3,768 3,157 19.3 Income tax provision 375 294 27.3 1,148 933 23.0 ---------- ---------- ---------- ---------- Income before accounting change 879 770 14.1 2,620 2,224 17.8 Cumulative effect of accounting change, net of tax - - - (71)(A) - - ---------- ---------- ---------- ---------- Net income $ 879 $ 770 14.1 $ 2,549 $ 2,224 14.6 ========== ========== ========== ==========
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. 12 (Preliminary) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Billions) September 30, December 31, 2004 2003 ------------- ------------ Assets Cash and cash equivalents $ 8 $ 6 Accounts receivable 32 31 Investments 59 57 Loans 32 32 Separate account assets 32 31 Other assets 16 18 ------------- ------------ Total assets $ 179 $ 175 ============= ============ Liabilities and Shareholders' Equity Separate account liabilities $ 32 $ 31 Short-term debt 14 19 Long-term debt 27 21 Other liabilities 90 89 ------------- ------------ Total liabilities 163 160 ------------- ------------ Shareholders' Equity 16 15 ------------- ------------ Total liabilities and shareholders' equity $ 179 $ 175 ============= ============
13 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (Unaudited)
(Millions) Quarters Ended Nine Months Ended September 30, September 30, ----------------------- Percentage ------------------------- Percentage 2004 2003 Inc/(Dec) 2004 2003 Inc/(Dec) ---------- ---------- ---------- ---------- ---------- ---------- REVENUES (A) Travel Related Services $ 5,362 $ 4,758 12.7 % $ 15,790 $ 13,978 13.0 % American Express Financial Advisors 1,714 1,525 12.3 5,205 4,432 17.4 American Express Bank 205 199 2.6 618 596 3.6 ---------- ---------- ---------- ---------- 7,281 6,482 12.3 21,613 19,006 13.7 Corporate and other, including adjustments and eliminations (79) (63) (26.2) (243) (208) (17.0) ---------- ---------- ---------- ---------- CONSOLIDATED REVENUES $ 7,202 $ 6,419 12.2 $ 21,370 $ 18,798 13.7 ========== ========== ========== ========== PRETAX INCOME (LOSS) BEFORE ACCOUNTING CHANGE Travel Related Services $ 1,047 $ 892 17.3 $ 3,099 $ 2,687 15.3 American Express Financial Advisors 257 224 14.3 838 611 37.0 American Express Bank 49 41 20.9 139 109 28.0 ---------- ---------- ---------- ---------- 1,353 1,157 16.9 4,076 3,407 19.6 Corporate and other (99) (93) (7.0) (308) (250) (23.5) ---------- ---------- ---------- ---------- PRETAX INCOME BEFORE ACCOUNTING CHANGE $ 1,254 $ 1,064 17.7 $ 3,768 $ 3,157 19.3 ========== ========== ========== ========== NET INCOME (LOSS) Travel Related Services $ 726 $ 606 19.8 $ 2,123 $ 1,824 16.4 American Express Financial Advisors 186 197 (6.1) 517 (B) 487 6.0 American Express Bank 32 27 18.4 90 73 22.7 ---------- ---------- ---------- ---------- 944 830 13.6 2,730 2,384 14.5 Corporate and other (65) (60) (7.4) (181) (160) (12.8) ---------- ---------- ---------- ---------- NET INCOME $ 879 $ 770 14.1 $ 2,549 (B) $ 2,224 14.6 ========== ========== ========== ==========
(A) Managed net revenues are reported net of American Express Financial Advisors' provision for losses and benefits and exclude the effect of TRS' securitization activities. The following table reconciles consolidated GAAP revenues to Managed Basis net revenues: GAAP revenues $ 7,202 $ 6,419 12.2 % $ 21,370 $ 18,798 13.7 % Effect of TRS securitizations 223 255 698 735 Effect of AEFA provisions (520) (535) (1,553) (1,567) ---------- ---------- ---------- ---------- Managed net revenues $ 6,905 $ 6,139 12.4 $ 20,515 $ 17,966 14.2 ========== ========== ========== ==========
(B) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. 14 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (CONTINUED) (UNAUDITED)
Quarters Ended Nine Months Ended September 30, September 30, --------------------- Percentage ------------------------- Percentage 2004 2003 Inc/(Dec) 2004 2003 Inc/(Dec) --------- --------- ---------- --------- --------- ---------- EARNINGS PER COMMON SHARE BASIC Income before accounting change $ 0.70 $ 0.60 16.7 % $ 2.07 $ 1.73 19.7 % Net income $ 0.70 $ 0.60 16.7 % $ 2.02 (A) $ 1.73 16.8 % ========= ========= ========= ========= Average common shares outstanding (millions) 1,251 1,278 (2.1) % 1,264 1,287 (1.8) % ========= ========= ========= ========= DILUTED Income before accounting change $ 0.69 $ 0.59 16.9 % $ 2.03 $ 1.71 18.7 % Net income $ 0.69 $ 0.59 16.9 % $ 1.98 (A) $ 1.71 15.8 % ========= ========= ========= ========= Average common shares outstanding (millions) 1,275 1,297 (1.7) % 1,289 1,298 (0.7) % ========= ========= ========= ========= Cash dividends declared per common share $ 0.12 $ 0.10 20.0 % $ 0.32 $ 0.28 14.3 % ========= ========= ========= =========
SELECTED STATISTICAL INFORMATION (Unaudited)
Quarters Ended Nine Months Ended September 30, September 30, --------------------- Percentage ------------------------ Percentage 2004 2003 Inc/(Dec) 2004 2003 Inc/(Dec) --------------------- ---------- ------------------------ ---------- Return on average total shareholders' equity (B) 21.5% 20.4% 21.5% 20.4% Common shares outstanding (millions) 1,255 1,285 (2.4)% 1,255 1,285 (2.4)% Book value per common share $ 12.62 $ 11.54 9.4 % $ 12.62 $ 11.54 9.4 % Shareholders' equity (billions) $ 15.8 $ 14.8 6.8 % $ 15.8 $ 14.8 6.8 %
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax), or $0.05 per share on both a basic and diluted basis related to the January 1, 2004 adoption of SOP 03-1. (B) Computed on a trailing 12-month basis using total shareholders' equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. 15 EX-99.2 FINANCIALS 3 exhibit99_2.txt EXHIBIT 99.2 EXHIBIT 99.2 All information in the following tables is presented on a basis prepared in accordance with U.S. generally accepted accounting principles (GAAP), unless otherwise indicated. (Preliminary) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended Nine Months Ended September 30, September 30, ----------------------- Percentage ------------------------- Percentage 2004 2003 Inc/(Dec) 2004 2003 Inc/(Dec) ---------- ---------- ---------- ---------- ---------- ---------- Revenues Discount revenue $ 2,535 $ 2,221 14.1 % $ 7,432 $ 6,349 17.1 % Net investment income 766 730 4.9 2,292 2,277 0.6 Management and distribution fees 732 603 21.2 2,261 1,692 33.6 Cardmember lending net finance charge revenue 562 476 18.1 1,664 1,511 10.1 Net card fees 474 462 2.5 1,418 1,368 3.7 Travel commissions and fees 426 349 22.0 1,311 1,062 23.5 Other commissions and fees 574 486 18.2 1,668 1,429 16.7 Insurance and annuity revenues 389 345 12.8 1,131 1,000 13.2 Securitization income, net 295 301 (1.9) 807 812 (0.6) Other 449 446 0.8 1,386 1,298 6.8 ---------- ---------- ---------- ---------- Total revenues 7,202 6,419 12.2 21,370 18,798 13.7 ---------- ---------- ---------- ---------- Expenses Human resources 1,796 1,559 15.2 5,414 4,625 17.0 Marketing, promotion, rewards and cardmember services 1,314 1,016 29.3 3,611 2,735 32.0 Provision for losses and benefits 1,054 1,080 (2.3) 3,156 3,265 (3.3) Interest 216 239 (9.4) 629 700 (10.1) Other operating expenses 1,568 1,463 7.2 4,792 4,318 11.0 Restructuring charges - (2) - - (2) - ---------- ---------- ---------- ---------- Total expenses 5,948 5,355 11.1 17,602 15,641 12.5 ---------- ---------- ---------- ---------- Pretax income before accounting change 1,254 1,064 17.7 3,768 3,157 19.3 Income tax provision 375 294 27.3 1,148 933 23.0 ---------- ---------- ---------- ---------- Income before accounting change 879 770 14.1 2,620 2,224 17.8 Cumulative effect of accounting change, net of tax - - - (71)(A) - - ---------- ---------- ---------- ---------- Net income $ 879 $ 770 14.1 $ 2,549 $ 2,224 14.6 ========== ========== ========== ==========
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. 1 (Preliminary) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Billions) September 30, December 31, 2004 2003 ------------- ------------ Assets Cash and cash equivalents $ 8 $ 6 Accounts receivable 32 31 Investments 59 57 Loans 32 32 Separate account assets 32 31 Other assets 16 18 ------------- ------------ Total assets $ 179 $ 175 ============= ============ Liabilities and Shareholders' Equity Separate account liabilities $ 32 $ 31 Short-term debt 14 19 Long-term debt 27 21 Other liabilities 90 89 ------------- ------------ Total liabilities 163 160 ------------- ------------ Shareholders' Equity 16 15 ------------- ------------ Total liabilities and shareholders' equity $ 179 $ 175 ============= ============
2 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (Unaudited)
(Millions) Quarters Ended Nine Months Ended September 30, September 30, ----------------------- Percentage ------------------------- Percentage 2004 2003 Inc/(Dec) 2004 2003 Inc/(Dec) ---------- ---------- ---------- ---------- ---------- ---------- REVENUES (A) Travel Related Services $ 5,362 $ 4,758 12.7 % $ 15,790 $ 13,978 13.0 % American Express Financial Advisors 1,714 1,525 12.3 5,205 4,432 17.4 American Express Bank 205 199 2.6 618 596 3.6 ---------- ---------- ---------- ---------- 7,281 6,482 12.3 21,613 19,006 13.7 Corporate and other, including adjustments and eliminations (79) (63) (26.2) (243) (208) (17.0) ---------- ---------- ---------- ---------- CONSOLIDATED REVENUES $ 7,202 $ 6,419 12.2 $ 21,370 $ 18,798 13.7 ========== ========== ========== ========== PRETAX INCOME (LOSS) BEFORE ACCOUNTING CHANGE Travel Related Services $ 1,047 $ 892 17.3 $ 3,099 $ 2,687 15.3 American Express Financial Advisors 257 224 14.3 838 611 37.0 American Express Bank 49 41 20.9 139 109 28.0 ---------- ---------- ---------- ---------- 1,353 1,157 16.9 4,076 3,407 19.6 Corporate and other (99) (93) (7.0) (308) (250) (23.5) ---------- ---------- ---------- ---------- PRETAX INCOME BEFORE ACCOUNTING CHANGE $ 1,254 $ 1,064 17.7 $ 3,768 $ 3,157 19.3 ========== ========== ========== ========== NET INCOME (LOSS) Travel Related Services $ 726 $ 606 19.8 $ 2,123 $ 1,824 16.4 American Express Financial Advisors 186 197 (6.1) 517 (B) 487 6.0 American Express Bank 32 27 18.4 90 73 22.7 ---------- ---------- ---------- ---------- 944 830 13.6 2,730 2,384 14.5 Corporate and other (65) (60) (7.4) (181) (160) (12.8) ---------- ---------- ---------- ---------- NET INCOME $ 879 $ 770 14.1 $ 2,549 (B) $ 2,224 14.6 ========== ========== ========== ==========
(A) Managed net revenues are reported net of American Express Financial Advisors' provision for losses and benefits and exclude the effect of TRS' securitization activities. The following table reconciles consolidated GAAP revenues to Managed Basis net revenues: GAAP revenues $ 7,202 $ 6,419 12.2 % $ 21,370 $ 18,798 13.7 % Effect of TRS securitizations 223 255 698 735 Effect of AEFA provisions (520) (535) (1,553) (1,567) ---------- ---------- ---------- ---------- Managed net revenues $ 6,905 $ 6,139 12.4 $ 20,515 $ 17,966 14.2 ========== ========== ========== ==========
(B) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. 3 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (CONTINUED) (UNAUDITED)
Quarters Ended Nine Months Ended September 30, September 30, --------------------- Percentage ------------------------- Percentage 2004 2003 Inc/(Dec) 2004 2003 Inc/(Dec) --------- --------- ---------- --------- --------- ---------- EARNINGS PER COMMON SHARE BASIC Income before accounting change $ 0.70 $ 0.60 16.7 % $ 2.07 $ 1.73 19.7 % Net income $ 0.70 $ 0.60 16.7 % $ 2.02 (A) $ 1.73 16.8 % ========= ========= ========= ========= Average common shares outstanding (millions) 1,251 1,278 (2.1) % 1,264 1,287 (1.8) % ========= ========= ========= ========= DILUTED Income before accounting change $ 0.69 $ 0.59 16.9 % $ 2.03 $ 1.71 18.7 % Net income $ 0.69 $ 0.59 16.9 % $ 1.98 (A) $ 1.71 15.8 % ========= ========= ========= ========= Average common shares outstanding (millions) 1,275 1,297 (1.7) % 1,289 1,298 (0.7) % ========= ========= ========= ========= Cash dividends declared per common share $ 0.12 $ 0.10 20.0 % $ 0.32 $ 0.28 14.3 % ========= ========= ========= =========
SELECTED STATISTICAL INFORMATION (Unaudited)
Quarters Ended Nine Months Ended September 30, September 30, --------------------- Percentage ------------------------ Percentage 2004 2003 Inc/(Dec) 2004 2003 Inc/(Dec) --------------------- ---------- ------------------------ ---------- Return on average total shareholders' equity (B) 21.5% 20.4% 21.5% 20.4% Common shares outstanding (millions) 1,255 1,285 (2.4)% 1,255 1,285 (2.4)% Book value per common share $ 12.62 $ 11.54 9.4 % $ 12.62 $ 11.54 9.4 % Shareholders' equity (billions) $ 15.8 $ 14.8 6.8 % $ 15.8 $ 14.8 6.8 %
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax), or $0.05 per share on both a basic and diluted basis related to the January 1, 2004 adoption of SOP 03-1. (B) Computed on a trailing 12-month basis using total shareholders' equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. 4 (Preliminary) AMERICAN EXPRESS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended ----------------------------------------------------------------------------- September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 ------------- ----------- ----------- ------------- ------------- Revenues Discount revenue $ 2,535 $ 2,529 $ 2,368 $ 2,432 $ 2,221 Net investment income 766 785 741 786 730 Management and distribution fees 732 750 779 758 603 Cardmember lending net finance charge revenue 562 561 541 531 476 Net card fees 474 472 472 467 462 Travel commissions and fees 426 468 417 445 349 Other commissions and fees 574 565 529 531 486 Insurance and annuity revenues 389 378 364 366 345 Securitization income, net 295 282 230 293 301 Other 449 468 469 459 446 ------------- ---------- ----------- ------------ ------------- Total revenues 7,202 7,258 6,910 7,068 6,419 ------------- ---------- ----------- ------------ ------------- Expenses Human resources 1,796 1,839 1,779 1,708 1,559 Marketing, promotion, rewards and cardmember services 1,314 1,250 1,047 1,166 1,016 Provision for losses and benefits 1,054 1,080 1,022 1,164 1,080 Interest 216 210 203 205 239 Other operating expenses 1,568 1,613 1,611 1,735 1,463 Restructuring charges - - - - (2) ------------- ---------- ----------- ------------ ------------- Total expenses 5,948 5,992 5,662 5,978 5,355 ------------- ---------- ----------- ------------ ------------- Pretax income before accounting change 1,254 1,266 1,248 1,090 1,064 Income tax provision 375 390 383 314 294 ------------- ---------- ----------- ------------ ------------- Income before accounting change 879 876 865 776 770 Cumulative effect of accounting change, net of tax - - (71)(A) (13)(B) - ------------- ---------- ----------- ------------ ------------- Net income $ 879 $ 876 $ 794 $ 763 $ 770 ============= ========== =========== ============ =============
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. (B) Reflects a $20 million non-cash pretax charge ($13 million after-tax) related to the December 31, 2003 adoption of FIN 46, as revised. 5 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (Unaudited)
(Millions) Quarters Ended ------------------------------------------------------------------------------- September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 ------------- ----------- ----------- ------------ ------------- REVENUES (A) Travel Related Services $ 5,362 $ 5,378 $ 5,050 $ 5,211 $ 4,758 American Express Financial Advisors 1,714 1,763 1,728 1,740 1,525 American Express Bank 205 203 210 205 199 ------------- ----------- ----------- ------------ ------------- 7,281 7,344 6,988 7,156 6,482 Corporate and other, including adjustments and eliminations (79) (86) (78) (88) (63) ------------- ----------- ----------- ------------ ------------- CONSOLIDATED REVENUES $ 7,202 $ 7,258 $ 6,910 $ 7,068 $ 6,419 ============= =========== =========== ============ ============= PRETAX INCOME (LOSS) BEFORE ACCOUNTING CHANGE Travel Related Services $ 1,047 $ 1,079 $ 973 $ 884 $ 892 American Express Financial Advisors 257 264 317 248 224 American Express Bank 49 42 48 42 41 ------------- ----------- ----------- ------------ ------------- 1,353 1,385 1,338 1,174 1,157 Corporate and other (99) (119) (90) (84) (93) ------------- ----------- ----------- ------------ ------------- PRETAX INCOME BEFORE ACCOUNTING CHANGE $ 1,254 $ 1,266 $ 1,248 $ 1,090 $ 1,064 ============= =========== =========== ============ ============= NET INCOME (LOSS) Travel Related Services $ 726 $ 732 $ 665 $ 606 $ 606 American Express Financial Advisors 186 174 157 (B) 182 (C) 197 American Express Bank 32 28 30 29 27 ------------- ----------- ----------- ------------ ------------- 944 934 852 817 830 Corporate and other (65) (58) (58) (54) (60) ------------- ----------- ----------- ------------ ------------- NET INCOME $ 879 $ 876 $ 794 (B) $ 763 (C) $ 770 ============= =========== =========== ============ =============
(A) Managed net revenues are reported net of American Express Financial Advisors' provision for losses and benefits and exclude the effect of TRS' securitization activities. The following table reconciles consolidated GAAP revenues to Managed Basis net revenues: GAAP revenues $ 7,202 $ 7,258 $ 6,910 $ 7,068 $ 6,419 Effect of TRS securitizations 223 196 279 208 255 Effect of AEFA provisions (520) (532) (501) (555) (535) ------------- ----------- ----------- ------------ ------------- Managed net revenues $ 6,905 $ 6,922 $ 6,688 $ 6,721 $ 6,139 ============= =========== =========== ============ =============
(B) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. (C) Reflects a $20 million non-cash pretax charge ($13 million after-tax) related to the December 31, 2003 adoption of FIN 46, as revised. 6 (Preliminary) AMERICAN EXPRESS COMPANY FINANCIAL SUMMARY (CONTINUED) (Unaudited)
Quarters Ended ------------------------------------------------------------------------------ September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 ------------- ----------- ----------- ------------ ------------- EARNINGS PER COMMON SHARE BASIC Income before accounting change $ 0.70 $ 0.69 $ 0.68 $ 0.61 $ 0.60 Net income $ 0.70 $ 0.69 $ 0.62 (A) $ 0.60 (B) $ 0.60 ============= =========== =========== ============ ============= Average common shares outstanding (millions) 1,251 1,263 1,277 1,277 1,278 ============= =========== =========== ============ ============= DILUTED Income before accounting change $ 0.69 $ 0.68 $ 0.66 $ 0.60 $ 0.59 Net income $ 0.69 $ 0.68 $ 0.61 (A) $ 0.59 (B) $ 0.59 ============= =========== =========== ============ ============= Average common shares outstanding (millions) 1,275 1,288 1,305 1,299 1,297 ============= =========== =========== ============ ============= Cash dividends declared per common share $ 0.12 $ 0.10 $ 0.10 $ 0.10 $ 0.10 ============= =========== =========== ============ =============
SELECTED STATISTICAL INFORMATION (Unaudited)
Quarters Ended ------------------------------------------------------------------------------ September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 ------------- ----------- ----------- ------------ ------------- Return on average total shareholders' equity (C) 21.5% 21.2% 20.7% 20.6% 20.4% Common shares outstanding (millions) 1,255 1,267 1,281 1,284 1,285 Book value per common share $ 12.62 $ 11.96 $ 12.30 $ 11.93 $ 11.54 Shareholders' equity (billions) $ 15.8 $ 15.2 $ 15.7 $ 15.3 $ 14.8
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax), or $0.06 on a basic per share basis and $0.05 on a diluted per share basis, related to the January 1, 2004 adoption of SOP 03-1. (B) Reflects a $20 million non-cash pretax charge ($13 million after-tax), or $0.01 per share on both a basic and diluted basis, related to the December 31, 2003 adoption of FIN 46, as revised. (C) Computed on a trailing 12-month basis using total shareholders' equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. 7 (Preliminary) TRAVEL RELATED SERVICES STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended September 30, --------------------- Percentage 2004 2003 Inc/(Dec) --------- --------- ------------ Net revenues: Discount revenue $ 2,535 $ 2,221 14.1 % Lending: Finance charge revenue 714 592 20.7 Interest expense 152 116 31.5 --------- --------- Net finance charge revenue 562 476 18.1 Net card fees 474 462 2.5 Travel commissions and fees 426 349 22.0 Other commissions and fees 563 465 21.0 Travelers Cheque investment income 96 90 6.9 Securitization income, net 295 301 (1.9) Other revenues 411 394 4.9 --------- --------- Total net revenues 5,362 4,758 12.7 --------- --------- Expenses: Marketing, promotion, rewards and cardmember services 1,280 994 28.8 Provision for losses and claims: Charge card 206 213 (3.4) Lending 233 279 (16.3) Other 84 31 # --------- --------- Total 523 523 - Charge card interest expense 174 186 (6.4) Human resources 1,074 938 14.5 Other operating expenses 1,264 1,225 3.3 --------- --------- Total expenses 4,315 3,866 11.7 --------- --------- Pretax income 1,047 892 17.3 Income tax provision 321 286 12.1 --------- --------- Net income $ 726 $ 606 19.8 ========= =========
# - Denotes a variance of more than 100%. 8 (Preliminary) TRAVEL RELATED SERVICES SELECTED FINANCIAL INFORMATION (Unaudited) Quarters Ended September 30,
(Millions) GAAP Basis Securitization Effect Managed Basis --------------------- Percentage --------------------- --------------------- Percentage 2004 2003 Inc/(Dec) 2004 2003 2004 2003 Inc/(Dec) --------- --------- ---------- --------- --------- --------- --------- ---------- Net revenues: Discount revenue $ 2,535 $ 2,221 14.1 % Lending: Finance charge revenue 714 592 20.7 $ 573 $ 585 $ 1,287 $ 1,177 9.5 % Interest expense 152 116 31.5 108 74 260 190 38.0 --------- --------- --------- --------- --------- --------- Net finance charge revenue 562 476 18.1 465 511 1,027 987 4.0 Net card fees 474 462 2.5 Travel commissions and fees 426 349 22.0 Other commissions and fees 563 465 21.0 53 45 616 510 20.6 Travelers Cheque investment income 96 90 6.9 Securitization income, net 295 301 (1.9) (295) (301) - - - Other revenues 411 394 4.9 --------- --------- --------- --------- --------- --------- Total net revenues 5,362 4,758 12.7 223 255 5,585 5,013 11.4 --------- --------- --------- --------- --------- --------- Expenses: Marketing, promotion, rewards and cardmember services 1,280 994 28.8 (6) - 1,274 994 28.2 Provision for losses and claims: Charge card 206 213 (3.4) Lending 233 279 (16.3) 232 255 465 534 (13.0) Other 84 31 # --------- --------- --------- --------- --------- --------- Total 523 523 - 232 255 755 778 (3.1) Charge card interest expense 174 186 (6.4) Human resources 1,074 938 14.5 Other operating expenses 1,264 1,225 3.3 (3) - 1,261 1,225 3.0 --------- --------- --------- --------- --------- --------- Total expenses 4,315 3,866 11.7 $ 223 $ 255 $ 4,538 $ 4,121 10.1 --------- --------- --------- --------- --------- --------- Pretax income 1,047 892 17.3 Income tax provision 321 286 12.1 --------- --------- Net income $ 726 $ 606 19.8 ========= =========
# - Denotes a variance of more than 100%. Securitization income, net represents revenue related to the Company's securitized loan receivables, which includes net gains and charges from securitization activity, net finance charge revenue on retained interests in securitized loans and servicing income, net of related discounts or fees. Management views the gains from securitizations as discretionary benefits to be used for card acquisition expenses, which are reflected in both marketing, promotion, rewards and cardmember services expenses and other operating expenses. Consequently, the above managed Selected Financial Information for the quarter ended September 30, 2004 assumes that the impact of this net activity of $9 million from lending securitizations was offset by higher marketing, promotion, rewards and cardmember services expenses of $6 million and other operating expenses of $3 million. Accordingly, the incremental expenses, as well as the impact of this net activity, have been eliminated. 9 (Preliminary) TRAVEL RELATED SERVICES SELECTED FINANCIAL INFORMATION (Unaudited) Quarters Ended
(Millions) GAAP Basis Securitization Effect Managed Basis ---------------------------- ------------------------------ ---------------------------- June March December June March December June March December 30, 31, 31, 30, 31, 31, 30, 31, 31, 2004 2004 2003 2004 2004 2003 2004 2004 2003 ------- ------- -------- ------- ------- -------- ------- ------- -------- Net revenues: Discount revenue $ 2,529 $ 2,368 $ 2,432 Lending: Finance charge revenue 697 668 654 $ 489 $ 539 $ 532 $ 1,186 $ 1,207 $ 1,186 Interest expense 136 127 123 61 83 84 197 210 207 ------- ------- -------- ------- ------- -------- ------- ------- -------- Net finance charge revenue 561 541 531 428 456 448 989 997 979 Net card fees 472 472 467 Travel commissions and fees 468 417 445 Other commissions and fees 551 510 515 50 53 53 601 563 568 Travelers Cheque investment income 95 93 93 Securitization income, net 282 230 293 (282) (230) (293) - - - Other revenues 420 419 435 ------- ------- -------- ------- ------- -------- ------- ------- -------- Total net revenues 5,378 5,050 5,211 196 279 208 5,574 5,329 5,419 ------- ------- -------- ------- ------- -------- ------- ------- -------- Expenses: Marketing, promotion, rewards and cardmember services 1,225 1,023 1,141 (6) (4) - 1,219 1,019 1,141 Provision for losses and claims: Charge card 189 198 227 Lending 314 287 330 205 287 208 519 574 538 Other 33 29 28 ------- ------- -------- ------- ------- -------- ------- ------- -------- Total 536 514 585 205 287 208 741 801 793 Charge card interest expense 175 168 187 Human resources 1,081 1,065 1,003 Other operating expenses 1,282 1,307 1,411 (3) (4) - 1,279 1,303 1,411 ------- ------- -------- ------- ------- -------- ------- ------- -------- Total expenses 4,299 4,077 4,327 $ 196 $ 279 $ 208 $ 4,495 $ 4,356 $ 4,535 ------- ------- -------- ------- ------- -------- ------- ------- -------- Pretax income 1,079 973 884 Income tax provision 347 308 278 ------- ------- -------- Net income $ 732 $ 665 $ 606 ======= ======= ========
Securitization income, net represents revenue related to the Company's securitized loan receivables, which includes net gains and charges from securitization activity, net finance charge revenue on retained interests in securitized loans and servicing income, net of related discounts or fees. Management views the gains from securitizations as discretionary benefits to be used for card acquisition expenses, which are reflected in both marketing, promotion, rewards and cardmember services expenses and other operating expenses. Consequently, the above managed Selected Financial Information for the quarters ended June 30, 2004 and March 31, 2004 assumes that the impact of this net activity of $9 million and $8 million, respectively, from lending securitizations was offset by higher marketing, promotion, rewards and cardmember services expenses of $6 million and $4 million, respectively, and other operating expenses of $3 million and $4 million, respectively. Accordingly, the incremental expenses, as well as the impact of this net activity, have been eliminated. 10 (Preliminary) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (Unaudited)
(Billions, except percentages and where indicated) Quarters Ended September 30, ------------------- Percentage 2004 2003 Inc/(Dec) -------- -------- ----------- Total cards-in-force (millions) (A): United States 38.0 35.9 6.1 % Outside the United States 25.3 23.4 7.8 -------- -------- Total 63.3 59.3 6.8 ======== ======== Basic cards-in-force (millions): United States 28.9 27.3 5.9 % Outside the United States 20.8 19.3 7.5 -------- -------- Total 49.7 46.6 6.5 ======== ======== Card billed business: United States $ 75.6 $ 66.3 13.9 % Outside the United States 27.2 22.5 20.9 -------- -------- Total $ 102.8 $ 88.8 15.7 ======== ======== Average discount rate (A) 2.57% 2.60% Average basic cardmember spending (dollars) (A) $ 2,330 $ 2,101 10.8 % Average fee per card - managed (dollars) (A) $ 34 $ 35 (2.9) % Non-Amex brand (B): Cards-in-force (millions) 0.6 0.7 (9.2) % Billed business $ 1.1 $ 1.0 9.4 % Travel sales $ 4.6 $ 3.7 23.4 % Travel commissions and fees/sales (C) 9.2% 9.3% Travelers Cheque and prepaid products: Sales $ 5.8 $ 6.0 (3.1) % Average outstanding $ 7.1 $ 7.0 2.5 % Average investments $ 7.6 $ 7.4 3.4 % Investment yield 5.4% 5.2% Tax equivalent yield 8.3% 8.0% Total debt $ 39.1 $ 33.3 17.6 % Shareholder's equity $ 9.0 $ 8.0 11.5 % Return on average total shareholder's equity (D) 32.7% 31.2% Return on average total assets (E) 3.5% 3.4%
(A) Cards-in-force include proprietary cards and cards issued under network partnership agreements outside the United States. Average discount rate, average basic cardmember spending and average fee per card are computed from proprietary card activities only. (B) These data relate to Visa and Eurocards issued in connection with joint venture activities. (C) Computed from information provided herein. (D) Computed on a trailing 12-month basis using total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. (E) Computed on a trailing 12-month basis using total assets as included in the Consolidated Financial Statements prepared in accordance with GAAP. 11 (Preliminary) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (CONTINUED) (Unaudited)
(Billions, except percentages and where indicated) Quarters Ended September 30, -------------------- Percentage 2004 2003 Inc/(Dec) -------- -------- ----------- Worldwide charge card receivables: Total receivables $ 28.6 $ 26.4 8.5 % 90 days past due as a % of total 1.8% 2.0% Loss reserves (millions) $ 847 $ 921 (8.1) % % of receivables 3.0% 3.5% % of 90 days past due 160% 174% Net loss ratio as a % of charge volume 0.26% 0.28% Worldwide lending - owned basis: Total loans $ 25.2 $ 22.6 11.9 % Past due loans as a % of total: 30-89 days 1.6% 1.7% 90+ days 0.9% 1.1% Loss reserves (millions): Beginning balance $ 1,030 $ 1,017 1.3 % Provision 205 261 (21.9) Net charge-offs (255) (282) (9.9) Other 28 (58) # -------- -------- Ending balance $ 1,008 $ 938 7.5 ======== ======== % of loans 4.0% 4.2% % of past due 159% 150% Average loans $ 26.2 $ 22.5 16.5 % Net write-off rate 3.9% 5.0% Net interest yield 9.3% 9.2% Worldwide lending - managed basis: Total loans $ 45.6 $ 42.1 8.2 % Past due loans as a % of total: 30-89 days 1.6% 1.7% 90+ days 0.9% 1.1% Loss reserves (millions): Beginning balance $ 1,535 $ 1,594 (3.7) % Provision 437 518 (15.7) Net charge-offs (463) (535) (13.6) Other 28 (58) # -------- -------- Ending balance $ 1,537 $ 1,519 1.2 ======== ======== % of loans 3.4% 3.6% % of past due 132% 128% Average loans $ 45.3 $ 42.1 7.9 % Net write-off rate 4.1% 5.1% Net interest yield 8.6% 9.0%
# - Denotes a variance of more than 100%. 12 (Preliminary) TRAVEL RELATED SERVICES STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended ------------------------------------------------------------------------ September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 -------------- --------- ---------- ------------- -------------- Net revenues: Discount revenue $ 2,535 $ 2,529 $ 2,368 $ 2,432 $ 2,221 Lending: Finance charge revenue 714 697 668 654 592 Interest expense 152 136 127 123 116 -------------- --------- ---------- ------------- -------------- Net finance charge revenue 562 561 541 531 476 Net card fees 474 472 472 467 462 Travel commissions and fees 426 468 417 445 349 Other commissions and fees 563 551 510 515 465 Travelers Cheque investment income 96 95 93 93 90 Securitization income, net 295 282 230 293 301 Other revenues 411 420 419 435 394 -------------- --------- ---------- ------------- -------------- Total net revenues 5,362 5,378 5,050 5,211 4,758 -------------- --------- ---------- ------------- -------------- Expenses: Marketing, promotion, rewards and cardmember services 1,280 1,225 1,023 1,141 994 Provision for losses and claims: Charge card 206 189 198 227 213 Lending 233 314 287 330 279 Other 84 33 29 28 31 -------------- --------- ---------- ------------- -------------- Total 523 536 514 585 523 Charge card interest expense 174 175 168 187 186 Human resources 1,074 1,081 1,065 1,003 938 Other operating expenses 1,264 1,282 1,307 1,411 1,225 -------------- --------- ---------- ------------- -------------- Total expenses 4,315 4,299 4,077 4,327 3,866 -------------- --------- ---------- ------------- -------------- Pretax income 1,047 1,079 973 884 892 Income tax provision 321 347 308 278 286 -------------- --------- ---------- ------------- -------------- Net income $ 726 $ 732 $ 665 $ 606 $ 606 ============== ========= ========== ============= ==============
13 (Preliminary) TRAVEL RELATED SERVICES SELECTED MANAGED BASIS INFORMATION (Unaudited)
(Millions) Quarters Ended ------------------------------------------------------------------------ September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 -------------- --------- ---------- ------------- -------------- Lending finance charge revenue $ 1,287 $ 1,186 $ 1,207 $ 1,186 $ 1,177 Lending interest expense 260 197 210 207 190 Other commissions and fees 616 601 563 568 510 Marketing, promotion, rewards and cardmember services 1,274 1,219 1,019 1,141 994 Lending provision 465 519 574 538 534 Other operating expenses 1,261 1,279 1,303 1,411 1,225
Note: See prior page for comparable GAAP measures. 14 (Preliminary) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (Unaudited)
(Billions, except percentages and where indicated) Quarters Ended ---------------------------------------------------------------------------- September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 -------------- --------- ---------- ------------- -------------- Total cards-in-force (millions) (A): United States 38.0 37.5 37.0 36.4 35.9 Outside the United States 25.3 25.0 24.6 24.1 23.4 -------------- --------- ---------- ------------- -------------- Total 63.3 62.5 61.6 60.5 59.3 ============== ========= ========== ============= ============== Basic cards-in-force (millions): United States 28.9 28.5 28.1 27.7 27.3 Outside the United States 20.8 20.8 20.4 19.9 19.3 -------------- --------- ---------- ------------- -------------- Total 49.7 49.3 48.5 47.6 46.6 ============== ========= ========== ============= ============== Card billed business: United States $ 75.6 $ 75.7 $ 70.1 $ 72.3 $ 66.3 Outside the United States 27.2 26.7 25.3 26.2 22.5 -------------- --------- ---------- ------------- -------------- Total $ 102.8 $ 102.4 $ 95.4 $ 98.5 $ 88.8 ============== ========= ========== ============= ============== Average discount rate (A) 2.57% 2.56% 2.59% 2.56% 2.60% Average basic cardmember spending (dollars) (A) $ 2,330 $ 2,339 $ 2,202 $ 2,314 $ 2,101 Average fee per card - managed (dollars) (A) $ 34 $ 34 $ 35 $ 35 $ 35 Non-Amex brand (B): Cards-in-force (millions) 0.6 0.7 0.7 0.7 0.7 Billed business $ 1.1 $ 1.0 $ 1.0 $ 1.1 $ 1.0 Travel sales $ 4.6 $ 5.2 $ 4.8 $ 4.7 $ 3.7 Travel commissions and fees/sales (C) 9.2% 9.0% 8.7% 9.5% 9.3% Travelers Cheque and prepaid products: Sales $ 5.8 $ 4.8 $ 4.4 $ 4.7 $ 6.0 Average outstanding $ 7.1 $ 6.9 $ 6.8 $ 6.6 $ 7.0 Average investments $ 7.6 $ 7.3 $ 7.3 $ 7.1 $ 7.4 Investment yield 5.4% 5.5% 5.4% 5.5% 5.2% Tax equivalent yield 8.3% 8.5% 8.3% 8.4% 8.0% Total debt $ 39.1 $ 38.8 $ 38.7 $ 38.4 $ 33.3 Shareholder's equity $ 9.0 $ 8.6 $ 8.1 $ 7.9 $ 8.0 Return on average total shareholder's equity (D) 32.7% 32.1% 31.7% 31.3% 31.2% Return on average total assets (E) 3.5% 3.4% 3.4% 3.4% 3.4%
(A) Cards-in-force include proprietary cards and cards issued under network partnership agreements outside the United States. Average discount rate, average basic cardmember spending and average fee per card are computed from proprietary card activities only. (B) These data relate to Visa and Eurocards issued in connection with joint venture activities. (C) Computed from information provided herein. (D) Computed on a trailing 12-month basis using total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. (E) Computed on a trailing 12-month basis using total assets as included in the Consolidated Financial Statements prepared in accordance with GAAP. 15 (Preliminary) TRAVEL RELATED SERVICES SELECTED STATISTICAL INFORMATION (CONTINUED) (Unaudited)
(Billions, except percentages and where indicated) Quarters Ended ------------------------------------------------------------------------ September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 -------------- --------- ---------- ------------- -------------- Worldwide charge card receivables: Total receivables $ 28.6 $ 28.4 $ 27.9 $ 28.4 $ 26.4 90 days past due as a % of total 1.8% 1.9% 2.0% 1.9% 2.0% Loss reserves (millions) $ 847 $ 864 $ 896 $ 916 $ 921 % of receivables 3.0% 3.0% 3.2% 3.2% 3.5% % of 90 days past due 160% 163% 164% 171% 174% Net loss ratio as a % of charge volume 0.26% 0.25% 0.26% 0.27% 0.28% Worldwide lending - owned basis: Total loans $ 25.2 $ 26.4 $ 24.5 $ 25.8 $ 22.6 Past due loans as a % of total: 30-89 days 1.6% 1.5% 1.7% 1.6% 1.7% 90+ days 0.9% 1.0% 1.1% 1.1% 1.1% Loss reserves (millions): Beginning balance $ 1,030 $ 994 $ 998 $ 938 $ 1,017 Provision 205 282 257 304 261 Net charge-offs (255) (267) (264) (275) (282) Other 28 21 3 31 (58) -------------- --------- ---------- ------------- -------------- Ending balance $ 1,008 $ 1,030 $ 994 $ 998 $ 938 ============== ========= ========== ============= ============== % of loans 4.0% 3.9% 4.1% 3.9% 4.2% % of past due 159% 154% 145% 146% 150% Average loans $ 26.2 $ 25.9 $ 25.1 $ 23.8 $ 22.5 Net write-off rate 3.9% 4.1% 4.2% 4.6% 5.0% Net interest yield 9.3% 9.4% 9.4% 9.6% 9.2% Worldwide lending - managed basis: Total loans $ 45.6 $ 45.1 $ 44.8 $ 45.3 $ 42.1 Past due loans as a % of total: 30-89 days 1.6% 1.5% 1.7% 1.6% 1.7% 90+ days 0.9% 1.0% 1.0% 1.1% 1.1% Loss reserves (millions): Beginning balance $ 1,535 $ 1,570 $ 1,541 $ 1,519 $ 1,594 Provision 437 486 545 511 518 Net charge-offs (463) (504) (519) (520) (535) Other 28 (17) 3 31 (58) -------------- --------- ---------- ------------- -------------- Ending balance $ 1,537 $ 1,535 $ 1,570 $ 1,541 $ 1,519 ============== ========= ========== ============= ============== % of loans 3.4% 3.4% 3.5% 3.4% 3.6% % of past due 132% 136% 128% 127% 128% Average loans $ 45.3 $ 44.9 $ 44.8 $ 43.3 $ 42.1 Net write-off rate 4.1% 4.5% 4.6% 4.8% 5.1% Net interest yield 8.6% 8.6% 8.7% 8.7% 9.0%
16 (Preliminary) AMERICAN EXPRESS FINANCIAL ADVISORS STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended September 30, --------------------- Percentage 2004 2003 Inc/(Dec) --------- --------- ----------- Revenues: Management and distribution fees $ 733 $ 606 21.1 % Net investment income 581 551 5.5 Other revenues 400 368 8.2 --------- --------- Total revenues 1,714 1,525 12.3 --------- --------- Expenses: Provision for losses and benefits: Annuities 252 277 (8.8) Insurance 223 212 4.8 Investment certificates 45 46 (1.2) --------- --------- Total 520 535 (2.8) Human resources 612 511 19.9 Other operating expenses 325 255 26.9 --------- --------- Total expenses 1,457 1,301 12.0 --------- --------- Pretax income 257 224 14.3 Income tax provision 71 27 # --------- --------- Net income $ 186 $ 197 (6.1) ========= =========
# - Denotes a variance of more than 100%. 17 (Preliminary) AMERICAN EXPRESS FINANCIAL ADVISORS SELECTED STATISTICAL INFORMATION (Unaudited)
(Millions, except percentages and where indicated) Quarters Ended September 30, --------------------- Percentage 2004 2003 Inc/(Dec) --------- --------- ----------- Investments (billions) (A) $ 43.1 $ 42.3 1.9 % Client contract reserves (billions) $ 42.9 $ 40.8 5.2 % Shareholder's equity (billions) $ 6.9 $ 7.1 (3.3) % Return on average total shareholder's equity before accounting change (B) 11.4% 10.1% Return on average total shareholder's equity (B) 10.1% 10.1% Life insurance inforce (billions) $ 142.5 $ 127.5 11.7 % Assets owned, managed or administered (billions): Assets managed for institutions $ 127.4 $ 116.7 9.2 % Assets owned, managed or administered for individuals: Owned assets: Separate account assets 32.4 27.6 17.2 Other owned assets 59.6 53.3 11.8 --------- --------- Total owned assets 92.0 80.9 13.7 Managed assets 108.6 96.6 12.4 Administered assets 55.3 45.6 21.4 --------- --------- Total $ 383.3 $ 339.8 12.8 ========= ========= Market appreciation (depreciation) and foreign currency translation during the period: Owned assets: Separate account assets $ (377) $ 613 # Other owned assets $ 752 $ (388) # Managed assets $ (194) $ 2,134 # Cash sales: Mutual funds $ 8,066 $ 7,361 9.6 % Annuities 1,887 1,866 1.1 Investment certificates 1,786 1,542 15.8 Life and other insurance products 239 198 21.0 Institutional 1,664 680 # Other 991 1,595 (37.8) --------- --------- Total cash sales $ 14,633 $ 13,242 10.5 ========= ========= Number of financial advisors 12,071 11,742 2.8 % Fees from financial plans and $ 28.1 $ 34.9 (19.6) % advice services Percentage of total sales from financial plans and advice services 75.4% 75.0%
# - Denotes a variance of more than 100%. (A) Excludes cash, derivatives, short-term and other investments. (B) Computed on a trailing 12-month basis using total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. 18 (Preliminary) AMERICAN EXPRESS FINANCIAL ADVISORS STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended ------------------------------------------------------------------------------ September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 -------------- --------- ---------- ------------- -------------- Revenues: Management and distribution fees $ 733 $ 752 $ 781 $ 759 $ 606 Net investment income 581 603 556 599 551 Other revenues 400 408 391 382 368 -------------- --------- ---------- ------------- -------------- Total revenues 1,714 1,763 1,728 1,740 1,525 -------------- --------- ---------- ------------- -------------- Expenses: Provision for losses and benefits: Annuities 252 266 255 274 277 Insurance 223 218 201 226 212 Investment certificates 45 48 45 55 46 -------------- --------- ---------- ------------- -------------- Total 520 532 501 555 535 Human resources 612 646 603 592 511 Other operating expenses 325 321 307 345 255 -------------- --------- ---------- ------------- -------------- Total expenses 1,457 1,499 1,411 1,492 1,301 -------------- --------- ---------- ------------- -------------- Pretax income before accounting change 257 264 317 248 224 Income tax provision 71 90 89 53 27 -------------- --------- ---------- ------------- -------------- Income before accounting change 186 174 228 195 197 Cumulative effect of accounting change, net of tax - - (71)(A) (13)(B) - -------------- --------- ---------- ------------- -------------- Net income $ 186 $ 174 $ 157 $ 182 $ 197 ============== ========= ========== ============= ==============
(A) Reflects a $109 million non-cash pretax charge ($71 million after-tax) related to the January 1, 2004 adoption of SOP 03-1. (B) Reflects a $20 million non-cash pretax charge ($13 million after-tax) related to the December 31, 2003 adoption of FIN 46, as revised. 19 (Preliminary) AMERICAN EXPRESS FINANCIAL ADVISORS SELECTED STATISTICAL INFORMATION (Unaudited)
(Millions, except percentages and where indicated) Quarters Ended --------------------------------------------------------------------------- September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 -------------- --------- ---------- ------------- -------------- Investments (billions) (A) $ 43.1 $ 41.8 $ 43.4 $ 42.1 $ 42.3 Client contract reserves (billions) $ 42.9 $ 41.9 $ 41.6 $ 41.2 $ 40.8 Shareholder's equity (billions) $ 6.9 $ 6.3 $ 7.4 $ 7.1 $ 7.1 Return on average total shareholder's equity before accounting change (B) 11.4% 11.7% 11.5% 10.4% 10.1% Return on average total shareholder's equity (B) 10.1% 10.5% 10.2% 10.2% 10.1% Life insurance inforce (billions) $ 142.5 $ 139.1 $ 135.0 $ 131.4 $ 127.5 Assets owned, managed or administered (billions): Assets managed for institutions $ 127.4 $ 125.5 $ 123.4 $ 116.4 (C) $ 116.7 Assets owned, managed or administered for individuals: Owned assets: Separate account assets 32.4 32.9 32.4 30.8 27.6 Other owned assets 59.6 57.9 58.9 53.8 (D) 53.3 -------------- --------- ---------- ------------- -------------- Total owned assets 92.0 90.8 91.3 84.6 80.9 Managed assets 108.6 108.8 109.3 110.2 96.6 Administered assets 55.3 55.3 54.4 54.1 45.6 -------------- --------- ---------- ------------- -------------- Total $ 383.3 $ 380.4 $ 378.4 $ 365.3 $ 339.8 ============== ========= ========== ============= ============== Market appreciation (depreciation) and foreign currency translation during the period: Owned assets: Separate account assets $ (377) $ (101) $ 756 $ 2,752 $ 613 Other owned assets $ 752 $ (1,476) $ 713 $ (275) $ (388) Managed assets $ (194) $ 232 $ 5,453 $ 15,767 $ 2,134 Cash sales: Mutual funds $ 8,066 $ 8,480 $ 9,799 $ 9,096 $ 7,361 Annuities 1,887 1,912 2,186 1,683 1,866 Investment certificates 1,786 1,445 1,324 1,520 1,542 Life and other insurance products 239 221 218 212 198 Institutional 1,664 2,841 1,415 939 680 Other 991 1,116 1,292 978 1,595 -------------- --------- ---------- ------------- -------------- Total cash sales $ 14,633 $ 16,015 $ 16,234 $ 14,428 $ 13,242 ============== ========= ========== ============= ============== Number of financial advisors 12,071 11,943 12,070 12,121 11,742 Fees from financial plans and advice services $ 28.1 $ 39.3 $ 33.2 $ 20.6 $ 34.9 Percentage of total sales from financial plans and advice services 75.4% 74.6% 75.3% 74.6% 75.0%
(A) Excludes cash, derivatives, short-term and other investments. (B) Computed on a trailing 12-month basis using total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. (C) As a result of AEFA's December 31, 2003 adoption of FIN 46, as revised, managed assets decreased by $3.8 billion. (D) As a result of AEFA's December 31, 2003 adoption of FIN 46, as revised, $0.5 billion of additional assets were consolidated. 20 (Preliminary) AMERICAN EXPRESS BANK STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended September 30, --------------------- Percentage 2004 2003 Inc/(Dec) --------- --------- ----------- Net revenues: Interest income $ 132 $ 139 (5.3)% Interest expense 56 52 8.2 --------- --------- Net interest income 76 87 (13.4) Commissions and fees 69 58 19.7 Foreign exchange income and other revenues 60 54 10.4 --------- --------- Total net revenues 205 199 2.6 --------- --------- Expenses: Human resources 71 71 (0.9) Other operating expenses 74 69 7.2 Provision for losses 11 20 (45.6) Restructuring charges - (2) - --------- --------- Total expenses 156 158 (2.0) --------- --------- Pretax income 49 41 20.9 Income tax provision 17 14 25.8 --------- --------- Net income $ 32 $ 27 18.4 ========= =========
21 (Preliminary) AMERICAN EXPRESS BANK SELECTED STATISTICAL INFORMATION (Unaudited)
(Billions, except percentages and where indicated) Quarters Ended September 30, ----------------------------- Percentage 2004 2003 Inc/(Dec) ------------- ------------- ------------- Total shareholder's equity (millions) $ 931 $ 952 (2.2)% Return on average total shareholder's equity (A) 12.4% 10.4% Return on average total assets (B) 0.85% 0.74% Total loans $ 6.4 $ 6.2 2.7% Total non-performing loans (millions) (C) $ 32 $ 84 (62.6)% Other non-performing assets (millions) $ 1 $ 15 (91.0)% Reserve for credit losses (millions) (D) $ 98 $ 125 (22.1)% Loan loss reserve as a % of total loans 1.5% 1.9% Total Personal Financial Services (PFS) loans $ 1.3 $ 1.4 (5.3)% 30+ days past due PFS loans as a % of total PFS loans 5.1% 5.3% Deposits $ 10.5 $ 10.6 (1.1)% Assets managed (E) / administered $ 17.6 $ 15.0 17.6% Assets of non-consolidated joint ventures (F) $ 1.7 $ 1.7 2.5% Risk-based capital ratios (G): Tier 1 10.8% 10.5% Total 10.6% 10.8% Leverage ratio 5.7% 6.0%
(A) Computed on a trailing 12-month basis using total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. (B) Computed on a trailing 12-month basis using total assets as included in the Consolidated Financial Statements prepared in accordance with GAAP. (C) AEB defines non-performing loans as loans (other than certain smaller-balance loans) on which the accrual of interest is discontinued because the contractual payment of principal or interest has become 90 days past due or if, in management's opinion, the borrower is unlikely to meet its contractual obligations. For smaller-balance loans, management establishes reserves it believes to be adequate to absorb credit losses inherent in the portfolio. Generally, these loans are written off in full when an impairment is determined or when the loan becomes 120 or 180 days past due, depending on loan type. (D) Allocation of reserves (millions): Loans $ 96 $ 117 Other assets, primarily matured foreign exchange and other derivative contracts 1 6 Other credit-related commitments 1 2 ------------- ------------- Total reserve for credit losses $ 98 $ 125 ============= =============
(E) Includes assets managed by American Express Financial Advisors. (F) Excludes American Express International Deposit Company's total assets (which are 100% consolidated at AEFA) for each period presented (and which totaled $5.2 billion at September 30, 2004). (G) Based on legal entity financial information. 22 (Preliminary) AMERICAN EXPRESS BANK STATEMENTS OF INCOME (Unaudited)
(Millions) Quarters Ended ------------------------------------------------------------------------ September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 -------------- --------- ---------- ------------- -------------- Net revenues: Interest income $ 132 $ 131 $ 134 $ 139 $ 139 Interest expense 56 51 53 57 52 -------------- --------- ---------- ------------- -------------- Net interest income 76 80 81 82 87 Commissions and fees 69 70 70 68 58 Foreign exchange income and other revenues 60 53 59 55 54 -------------- --------- ---------- ------------- -------------- Total net revenues 205 203 210 205 199 -------------- --------- ---------- ------------- -------------- Expenses: Human resources 71 71 75 75 71 Other operating expenses 74 78 81 67 69 Provision for losses 11 12 6 21 20 Restructuring charges - - - - (2) -------------- --------- ---------- ------------- -------------- Total expenses 156 161 162 163 158 -------------- --------- ---------- ------------- -------------- Pretax income 49 42 48 42 41 Income tax provision 17 14 18 13 14 -------------- --------- ---------- ------------- -------------- Net income $ 32 $ 28 $ 30 $ 29 $ 27 ============== ========= ========== ============= ==============
23 (Preliminary) AMERICAN EXPRESS BANK SELECTED STATISTICAL INFORMATION (Unaudited)
(Billions, except percentages and where indicated) Quarters Ended ------------------------------------------------------------------------- September 30, June 30, March 31, December 31, September 30, 2004 2004 2004 2003 2003 -------------- --------- ---------- ------------- -------------- Total shareholder's equity (millions) $ 931 $ 953 $ 992 $ 949 $ 952 Return on average total shareholder's equity (A) 12.4% 11.9% 11.9% 10.8% 10.4% Return on average total assets (B) 0.85% 0.81% 0.81% 0.74% 0.74% Total loans $ 6.4 $ 6.5 $ 6.4 $ 6.5 $ 6.2 Total non-performing loans (millions) (C) $ 32 $ 50 $ 69 $ 78 $ 84 Other non-performing assets (millions) $ 1 $ 2 $ 10 $ 15 $ 15 Reserve for credit losses (millions) (D) $ 98 $ 105 $ 113 $ 121 $ 125 Loan loss reserve as a % of total loans 1.5% 1.6% 1.7% 1.7% 1.9% Total Personal Financial Services (PFS) loans $ 1.3 $ 1.3 $ 1.3 $ 1.4 $ 1.4 30+ days past due PFS loans as a % of total PFS loans 5.1% 5.5% 5.5% 6.6% 5.3% Deposits $ 10.5 $ 11.2 $ 10.7 $ 10.8 $ 10.6 Assets managed (E) / administered $ 17.6 $ 16.9 $ 16.8 $ 16.2 $ 15.0 Assets of non-consolidated joint ventures (F) $ 1.7 $ 1.7 $ 1.8 $ 1.7 $ 1.7 Risk-based capital ratios (G): Tier 1 10.8% 12.0% 11.7% 11.4% 10.5% Total 10.6% 11.8% 11.5% 11.3% 10.8% Leverage ratio 5.7% 5.9% 5.7% 5.5% 6.0%
(A) Computed on a trailing 12-month basis using total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. (B) Computed on a trailing 12-month basis using total assets as included in the Consolidated Financial Statements prepared in accordance with GAAP. (C) AEB defines non-performing loans as loans (other than certain smaller-balance loans) on which the accrual of interest is discontinued because the contractual payment of principal or interest has become 90 days past due or if, in management's opinion, the borrower is unlikely to meet its contractual obligations. For smaller-balance loans, management establishes reserves it believes to be adequate to absorb credit losses inherent in the portfolio. Generally, these loans are written off in full when an impairment is determined or when the loan becomes 120 or 180 days past due, depending on loan type. (D) Allocation of reserves (millions): Loans $ 96 $ 103 $ 106 $ 113 $ 117 Other assets, primarily matured foreign exchange and other derivative contracts 1 1 6 6 6 Other credit-related commitments 1 1 1 2 2 ------------- --------- --------- ------------ ------------- Total reserve for credit losses $ 98 $ 105 $ 113 $ 121 $ 125 ============= ========= ========= ============ ==============
(E) Includes assets managed by American Express Financial Advisors. (F) Excludes American Express International Deposit Company's total assets (which are 100% consolidated at AEFA ) for each period presented (and which totaled $5.2 billion at September 30, 2004). (G) Based on legal entity financial information. 24 EX-99.3 SUPPLEMENT 4 exhibit99_3.txt EXHIBIT 99.3 EXHIBIT 99.3 [LOGO OF AMERICAN EXPRESS COMPANY] 2004 Third Quarter Earnings Supplement The enclosed summary should be read in conjunction with the text and statistical tables included in American Express Company's (the "Company" or "AXP") Third Quarter 2004 Earnings Release. - --------------------------------------------------------------------------- This summary contains certain forward-looking statements that are subject to risks and uncertainties and speak only as of the date on which they are made. Important factors that could cause actual results to differ materially from these forward-looking statements, including the Company's financial and other goals, are set forth on page 16 herein and in the Company's 2003 10-K Annual Report, and other reports, on file with the Securities and Exchange Commission. - --------------------------------------------------------------------------- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 HIGHLIGHTS o Third quarter diluted EPS of $0.69 increased 17% versus $0.59 last year. GAAP revenues rose 12%. For the trailing 12 months, ROE was 21%. - 3Q '04 included: -- A charge within TRS of $115MM (net of $32MM of reserves previously provided) as a result of the reconciliation of prior year's securitization-related lending receivable accounts; -- A $60MM benefit within TRS reflecting a reduction in merchant-related reserves; -- A net benefit of $24MM ($15MM after-tax) resulting from Deferred Acquisition Costs (DAC) related adjustments arising from AEFA's annual third quarter review of underlying DAC assumptions and dynamics (see discussion on page 13); -- $11MM ($7MM after-tax) of net investment gains at AEFA; and -- Higher expenses related to securities industry regulatory and legal matters at AEFA. - 3Q '03 included: -- A $29MM reduction in tax expense at AEFA due to adjustments related to the finalization of the 2002 tax return filed during the quarter and the publication of favorable technical guidance related to the taxation of dividend income; and -- $13MM ($8MM after-tax) of net investment losses at AEFA. o Compared with the third quarter of 2003: - Worldwide billed business increased 16% on continued strong consumer, small business and Corporate Services spending growth. A comparatively weaker U.S. dollar benefited the reported growth rate by 2%. -- Worldwide average spending per basic card in force increased 11% versus last year (up 9% adjusted for foreign exchange translation); - TRS' worldwide lending balances on an owned basis of $25.2B increased 12%, while on a managed basis, worldwide lending balances of $45.6B were up 8% (see discussion of "managed basis" on page 6); - Card credit quality continued to be well controlled and reserve coverage ratios remained strong; - Worldwide cards in force of 63.3MM increased 7%, up 4.0MM from last year and 0.8MM during 3Q `04; and, - AEFA assets owned, managed and administered of $383B were up 13% vs. last year reflecting market appreciation and asset inflows. o Additional items of note included: - Marketing, promotion, rewards and cardmember services costs increased 29% versus 3Q '03 as a result of increased rewards costs, reflecting strong volume growth, a higher redemption rate, and the increase in cardmember loyalty program participation, as well as our continued focus on business building activities. Improved metric performance during the quarter reflected the benefits of the increased spending over the last two years. - Lower funding costs continued to provide benefits. - The Company's reengineering initiatives are on track to deliver the $1B of benefits targeted for this year, including significant carry-over benefits from certain initiatives begun in prior periods. During the third quarter, reengineering initiatives continued to provide substantial year-over-year expense comparison benefits. In addition, revenue-related reengineering activities are driving a significant portion of the total benefits, representing approximately 25% of the benefits delivered in 3Q `04. --Compared with last year, the total employee count of 78,200 rose 4% due to the 4Q `03 addition of 2,700 Rosenbluth employees; compared with last quarter, the total employee count was down 600 employees or 1%. Compared with 12/31/01, the total employee count was down 6,300, or 7%. - As previously disclosed, the Company decided to expense stock options beginning in 1Q '03 and use restricted stock awards in place of stock options for middle management. As a result, the 3Q '04 impacts of incremental annual option grant expense, increased levels of restricted stock awards and other related compensation changes contributed to the increase in human resources expense. -1- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 HIGHLIGHTS (Cont'd) o Separately, American Express announced that it has signed agreements with Delta Airlines to extend its co-brand, Membership Rewards and merchant partnerships. The agreements would extend these partnerships into the next decade. As part of the agreements, AXP would pre-pay $500MM for the future purchase of Delta SkyMiles rewards points. The Company would also provide a $100MM loan to Delta as part of a new credit facility currently being negotiated with other lenders. The prepayment would have a three-year term and both the prepayment and the loan would be fully collateralized by a pool of assets and are subject to certain conditions. The Company's decision to participate in Delta's restructuring program reflects its long-term partnership with the airline through its travel business, co-branded cards and the Membership Rewards program. While American Express' Delta SkyMiles Credit Card co-brand portfolio accounts for less than 10 percent of the Company's total worldwide billed business and less than 15 percent of worldwide managed lending receivables, it represents a very attractive, high-spending, loyal cardmember base with excellent credit quality. American Express continues to believe this portfolio represents an attractive growth opportunity. o AXP has also announced an agreement to sell its small business equipment leasing unit, American Express Business Financial Corporation (AEBF) with a loan portfolio of approximately $1.5B. We do not expect the gain on the sale of AEBF to have a material impact on fourth quarter results because of unrelated, newly anticipated costs associated with global reengineering initiatives. o During the quarter, American Express continued to invest in growth opportunities through expanded products and services. During the quarter, we: - Launched the IN:NYC card, a new fee-free credit card that helps New Yorkers get the most out of New York city by providing exclusive offers for cardmembers and double points through a unique loyalty program, INSIDE Rewards; - Announced the TrueEarnings Cards, two new co-branded Credit Cards that reward Costco members with rich cash rebates for purchases, including attractive rebates for eating out and traveling, which include the TrueEarnings Card for consumers, and the TrueEarnings Business Card for small businesses, offering one simple, easy-to-understand rewards structure; - Announced a network partnership with National Australia Bank (NAB) to issue the Ant Card, a new co-branded credit card that can be linked with NAB transaction accounts, allowing cardmembers to make cash withdrawals from NAB ATMs throughout Australia; - Launched a co-branded card with Indian Airlines to provide value-added services to frequent fliers including 5-15% discounts on its airfares; - Signed an agreement with Hotel Okura Co., Ltd. in Tokyo to issue the Okura Club American Express Card, a co-branded charge card featuring the Okura Club point program; - Launched Identity Theft Assistance, a new benefit available to all American Express(R) Cardmembers at no extra cost that provides dedicated support that can help Cardmembers safeguard their personal information, determine if their identity has been stolen, and if so, provide assistance in helping regain it; - Announced the latest benefit exclusively for Centurion(R) members - a new magazine to be published quarterly by American Express Publishing Corporation with exclusive content that will provide lifestyle information with refreshing twists and new perspectives; - Signed an agreement with Navigant International, Inc. ("TQ3NAVIGANT"), the second largest provider of corporate travel management services in the U.S., to distribute American Express Commercial Cards to TQ3NAVIGANT's travel clients in the U.S; - Completed the Rosenbluth integration and announced the global re-launch of American Express Business Travel, by introducing new branding and advertising and reshaping the product and solution set around delivering savings, service and control of 100 percent of customers' travel expenditures globally; and - On October 21st announced that JetBlue Airways has joined the Membership Rewards Program. -2- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW CONSOLIDATED (Preliminary) CONDENSED STATEMENTS OF INCOME (Unaudited, GAAP basis)
Quarters Ended Percentage (millions) September 30, Inc/(Dec) ------------------------------- ------------- 2004 2003 ---- ---- Revenues: Discount revenue $2,535 $2,221 14% Net investment income 766 730 5 Management and distribution fees 732 603 21 Cardmember lending net finance charge revenue 562 476 18 Net card fees 474 462 2 Travel commissions and fees 426 349 22 Other commissions and fees 574 486 18 Insurance and annuity revenues 389 345 13 Securitization income, net 295 301 (2) Other 449 446 1 ------ ------ Total revenues 7,202 6,419 12 ------ ------ Expenses: Human resources 1,796 1,559 15 Marketing, promotion, rewards and cardmember services 1,314 1,016 29 Provision for losses and benefits 1,054 1,080 (2) Interest 216 239 (9) Restructuring charges - (2) - Other operating expenses 1,568 1,463 7 ----- ----- Total expenses 5,948 5,355 11 ----- ----- Pre-tax income 1,254 1,064 18 Income tax provision 375 294 27 ------ ------ Net income $879 $770 14 ====== ====== EPS: Net Income - Basic $0.70 $0.60 17 ====== ====== Net Income - Diluted $0.69 $0.59 17 ====== ======
Note: Certain prior period amounts have been reclassified to conform to the current year presentation. o NET INCOME: Increased 14% to a record quarterly level of $879MM. o CONSOLIDATED REVENUES: Revenues increased 12% due to greater discount revenues, higher management and distribution fees, greater travel and other commissions and fees, higher cardmember lending net finance charge revenue, and larger insurance and annuity revenues. The Threadneedle and Rosenbluth acquisitions contributed approximately 2% to the revenue growth rate; the effect on net income was not material. Consolidated revenue growth versus last year reflected 13% growth at TRS, 12% growth at AEFA, and 3% growth at AEB. Translation of foreign currency revenues contributed approximately 1% of the 12% revenue growth rate. o CONSOLIDATED EXPENSES: Expenses were up 11%, reflecting higher marketing, promotion, rewards and cardmember services expenses, greater human resources costs, and increased other operating expenses. These increases were partially offset by lower provisions for losses and benefits, and reduced funding costs. Consolidated expenses reflected increases versus last year of 12% at TRS and at AEFA, while AEB expenses declined 2%. Translation of foreign currency expenses contributed approximately 1% of the 11% expense growth rate. o PRE-TAX MARGIN: Was 17.4% in 3Q `04 and 2Q '04 and 16.6% in 3Q '03. o EFFECTIVE TAX RATE: Was 30% in 3Q '04, 31% in 2Q '04 and 28% in 3Q '03. -3- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW CONSOLIDATED (Cont'd) o SHARE REPURCHASES: During 3Q '04, 15.4MM shares were repurchased. Since the inception of repurchase programs in September 1994, 480.5MM shares have been acquired under cumulative Board authorizations to repurchase up to 570MM shares, including purchases made under agreements with third parties.
Millions of Shares ------------------------------------------------ - Average shares: 3Q `04 2Q `04 3Q `03 --------------- ------ ------ ------ Basic 1,251 1,263 1,278 ===== ====== ===== Diluted 1,275 1,288 1,297 ====== ====== ===== - Actual shares: Shares outstanding - beginning of period 1,267 1,281 1,286 Repurchase of common shares (15) (19) (6) Employee benefit plans, compensation and other 3 5 5 ----- ----- ----- Shares outstanding - end of period 1,255 1,267 1,285 ===== ===== =====
o Supplemental Information - Managed Net Revenues: The following supplemental revenue information is presented on the basis used by management to evaluate operations. It differs in two respects from the GAAP basis revenues, which are prepared in accordance with accounting principles generally accepted in the United States (GAAP). First, revenues are presented as if there had been no asset lending securitizations at TRS. This format is generally termed on a "managed basis", as further discussed in the TRS section of this Earnings Supplement. Second, revenues are considered net of AEFA's provisions for losses and benefits for annuities, insurance and investment certificate products, which are essentially spread businesses, as further discussed in the AEFA section of this Earnings Supplement. A reconciliation of consolidated revenues from a GAAP to a net managed basis is as follows:
(millions) Percentage 3Q '04 3Q '03 Inc/(Dec) ------ ------ ---------- GAAP revenues $7,202 $6,419 12% Effect of TRS securitizations 223 255 Effect of AEFA provisions for losses and benefits (520) (535) ------ ------ Managed net revenues $6,905 $6,139 12% ====== ======
- Consolidated net revenues on a managed basis increased 12% versus last year due to greater discount revenues, increased management and distribution fees, higher travel and other commissions and fees, larger insurance and annuity revenues, and higher net card fees. CORPORATE AND OTHER o The net expense was $65MM in 3Q '04 compared with $58MM in 2Q '04 and $60MM in 3Q '03. The increase versus last year reflects increased corporate investment spending on compliance and technology projects. -4- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Preliminary) Statements of Income (Unaudited, GAAP basis)
Quarters Ended Percentage (millions) September 30, Inc/(Dec) --------------------------------- ------------- 2004 2003 ------ ------ Net revenues: Discount revenue $2,535 $2,221 14% Lending: Finance charge revenue 714 592 21 Interest expense 152 116 32 ------ ------ Net finance charge revenue 562 476 18 Net card fees 474 462 2 Travel commissions and fees 426 349 22 Other commissions and fees 563 465 21 TC investment income 96 90 7 Securitization income, net 295 301 (2) Other revenues 411 394 5 ------ ------ Total net revenues 5,362 4,758 13 ------ ------ Expenses: Marketing, promotion, rewards and cardmember services 1,280 994 29 Provision for losses and claims: Charge card 206 213 (3) Lending 233 279 (16) Other 84 31 # ------ ------ Total 523 523 - ------ ------ Charge card interest expense 174 186 (6) Human resources 1,074 938 15 Other operating expenses 1,264 1,225 3 ------ ------ Total expenses 4,315 3,866 12 ------ ------ Pre-tax income 1,047 892 17 Income tax provision 321 286 12 ------ ------ Net income $726 $606 20 ====== ======
# Denotes variance greater than 100%. Note: Certain prior period amounts have been reclassified to conform to the current year presentation. o NET INCOME: Increased 20%. - 3Q '04 included: -- A charge within TRS of $115MM (net of $32MM of reserves previously provided) as a result of the reconciliation of prior year's securitization-related lending receivable accounts; -- A $60MM benefit within TRS reflecting a reduction in merchant-related reserves; and -- The Rosenbluth acquisition, which was completed in October 2003, added approximately 1% to revenue growth, but had a minimal impact on net income. o PRE-TAX MARGIN: Was 19.5% in 3Q `04 versus 20.1% in 2Q `04 and 18.8% in 3Q '03. o EFFECTIVE TAX RATE: Was 31% in 3Q '04, and 32% in 2Q '04 and 3Q '03. The reduction in the TRS effective tax rate from Q2 `04 and Q3 `03 resulted primarily from both one time and ongoing benefits related to the restructuring of certain foreign operations, as well as adjustments to foreign tax expense to reflect the results of completed tax returns. o GAAP BASIS INCOME STATEMENT ITEMS: - SECURITIZATION INCOME, net decreased 2%. Securitization income, net represents revenue related to the Company's securitized loan receivables, which includes net gains and charges from securitization activity, net finance charge revenue on retained interests in securitized loans, and servicing income, net of related discounts and fees. -- During 3Q '04, TRS recognized a net pre-tax gain of $9MM ($6MM after-tax) related to net lending securitization activity. This net gain consisted of $72MM ($47MM after-tax) from the securitization of $2.1B of U.S. lending receivables, and charges of $63MM ($41MM after-tax) related to the maturity of $0.5B of securitizations, changes in I/O assumption factors, including paydown rates and yields and a reconciliation adjustment to lending receivable accounts. There were no incremental securitizations during 3Q '03. The average balance of cardmember lending securitizations was $19.1B in 3Q '04 versus $19.4B in 3Q '03. - NET FINANCE CHARGE REVENUE increased 18%, reflecting 17% growth in the average balance of the owned lending portfolio for the period and a higher yield. - THE LENDING PROVISION decreased 16% reflecting strong credit quality in the lending portfolio. - The above GAAP basis items relating to net finance charge revenue and lending provision reflect the owned portfolio only. "Owned basis" credit quality statistics are available in the Third Quarter 2004 Earnings Release on the TRS Selected Statistical Information pages. -5- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Cont'd) SUPPLEMENTAL INFORMATION - MANAGED BASIS: The following supplemental table includes information on both a GAAP basis and a "managed" basis. The managed basis presentation assumes there have been no securitization transactions, i.e., all securitized Cardmember loans and related income effects are reflected in the Company's balance sheet and income statement, respectively. The Company presents TRS information on a managed basis because that is the way the Company's management views and manages the business. Management believes that a full picture of trends in the Company's Cardmember lending business can only be derived by evaluating the performance of both securitized and non-securitized Cardmember loans. Asset securitization is just one of several ways for the Company to fund Cardmember loans. Use of a managed basis presentation, including non-securitized and securitized Cardmember loans, presents a more accurate picture of the key dynamics of the Cardmember lending business, avoiding distortions due to the mix of funding sources at any particular point in time. For example, irrespective of the mix, it is important for management and investors to see metrics, such as changes in delinquencies and write-off rates, for the entire Cardmember lending portfolio because it is more representative of the economics of the aggregate Cardmember relationships and ongoing business performance and trends over time. It is also important for investors to see the overall growth of Cardmember loans and related revenue and changes in market share, which are all significant metrics in evaluating the Company's performance and which can only be properly assessed when all non-securitized and securitized Cardmember loans are viewed together on a managed basis. Management views the gains from securitizations as discretionary benefits to be used for card acquisition expenses, which are reflected in both marketing, promotion, rewards and cardmember services and other operating expenses. Consequently, the managed basis presentation assumes that during 3Q '04 the net lending securitization activity was offset by higher marketing, promotion, rewards and cardmember services expenses of $6MM and other operating expenses of $3MM. Accordingly, the incremental expenses, as well as the impact of the net lending securitization activity, have been eliminated. The following table compares and reconciles the GAAP basis TRS income statements to the managed basis information, where different.
Effect of Securitizations (unaudited) ------------------------------------------------------ (preliminary, millions) GAAP Basis (unaudited) Securitization Managed Basis Effect - ------------------------------------------------------------------------ ------------------ ----------------------------------- Percentage Percentage Quarters Ended September 30, 2004 2003 Inc/(Dec) 2004 2003 2004 2003 Inc/(Dec) ---------------------------------- ------------------ ----------------------------------- Net revenues: Discount revenue $2,535 $2,221 14% Lending: Finance charge revenue 714 592 21 $573 $585 $1,287 $1,177 9% Interest expense 152 116 32 108 74 260 190 38 ---------------------------------- ------------------ ----------------------------------- Net finance charge revenue 562 476 18 465 511 1,027 987 4 Net card fees 474 462 2 Travel commissions and fees 426 349 22 Other commissions and fees 563 465 21 53 45 616 510 21 TC investment income 96 90 7 Securitization income, net 295 301 (2) (295) (301) - - Other revenues 411 394 5 ---------------------------------- ------------------ ----------------------------------- Total net revenues 5,362 4,758 13 223 255 5,585 5,013 11 ---------------------------------- ------------------ ----------------------------------- Expenses: Marketing, promotion, rewards and cardmember services 1,280 994 29 (6) - 1,274 994 28 Provision for losses and claims: Charge card 206 213 (3) Lending 233 279 (16) 232 255 465 534 (13) Other 84 31 # ---------------------------------- ------------------ ----------------------------------- Total 523 523 - 232 255 755 778 (3) Charge card interest expense 174 186 (6) Human resources 1,074 938 15 Other operating expenses 1,264 1,225 3 (3) - 1,261 1,225 3 ---------------------------------- ------------------ ----------------------------------- Total expenses 4,315 3,866 12 $223 $255 $4,538 $4,121 10 ---------------------------------- ------------------ ----------------------------------- Pre-tax income 1,047 892 17 Income tax provision 321 286 12 ---------------------------------- Net income $726 $606 20 ----------------------------------
Note: Certain prior period amounts have been reclassified to conform to the current year presentation. # Denotes variance greater than 100% -6- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Cont'd) The following discussion addresses results on a managed basis. o Managed basis net revenue rose 11% from higher Cardmember spending, greater travel and other commissions and fees, higher net finance charge revenue, and greater cards in force. o The 10% higher managed basis expenses reflect substantially higher marketing, promotion, rewards and cardmember services costs, greater human resources expenses and increased other operating expenses, partially offset by reduced provisions for losses and lower interest costs. o DISCOUNT REVENUE: A 16% increase in billed business, partially offset by a lower discount rate, yielded a 14% increase in discount revenue. - The average discount rate was 2.57% in 3Q '04 versus 2.56% in 2Q '04 and 2.60% in 3Q `03. The decrease versus last year primarily reflects changes in the mix of spending between various merchant segments due to the cumulative impact of stronger than average growth in the lower rate retail and other "everyday spend" merchant categories (e.g., supermarkets, discounters, etc). -- We believe the AXP value proposition is strong. However, as indicated in prior quarters, continued changes in the mix of business, volume related pricing discounts and selective repricing initiatives will probably continue to result in some average rate erosion over time.
Quarters Ended Percentage September 30, Inc/(Dec) ----------------------------------- -------------- 2004 2003 ------ ----- Card billed business (billions): United States $75.6 $66.3 14% Outside the United States 27.2 22.5 21 ------ ----- Total $102.8 $88.8 16 ====== ===== Cards in force (millions): United States 38.0 35.9 (b) 6 Outside the United States 25.3 23.4 8 ------ ----- Total 63.3 59.3 (b) 7 ====== ===== Basic cards in force (millions): United States 28.9 27.3 6 Outside the United States 20.8 19.3 7 ------ ----- Total 49.7 46.6 7 ====== ===== Spending per basic card in force (dollars): (a) United States $2,634 $2,424 9 Outside the United States $1,687 $1,442 17 ------ ------ Total $2,330 $2,101 11 ====== ======
(a) Proprietary card activity only. (b) Prior year amounts have been reduced reflecting a 4Q '03 correction of the number of supplemental cards-in-force. - BILLED BUSINESS: The 16% increase in worldwide billed business resulted from an 11% increase in spending per basic cardmember and 7% growth in cards in force. -- U.S. billed business was up 14% reflecting growth of 14% within the consumer card business, an 18% increase in small business spending and 10% improvement in Corporate Services volumes. - Spending per basic card in force increased 9%. -- Excluding the impact of foreign exchange translation: - Worldwide billed business and spending per proprietary basic card in force increased 14% and 9%, respectively. - Total billed business outside the U.S. was up 15% reflecting double-digit growth across all regions. - Global Network Services volumes rose 27%. - Within our proprietary business, billed business outside the U.S. reflected growth in consumer and small business spending of 12% and a 14% increase in Corporate Services volumes. - Spending per proprietary basic card in force outside the U.S. rose 11%. -- U.S. non-T&E related volume categories (which represented approximately 67% of 3Q `04 U.S. billed business) grew 18%, while T&E volumes rose 8%. -- U.S. airline related volume, which represented approximately 11% of total volumes during the quarter, rose 3% as transaction volume growth was suppressed by a lower average airline charge level. Worldwide airline volumes, which represented approximately 12% of total volumes during the quarter, increased 9% on 16% growth in transaction volume, partially offset by a decrease in the average airline charge of 7%. -7- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Cont'd) o Discount Revenue (cont'd): - CARDS IN FORCE worldwide rose 7% versus last year on continued strong card acquisitions and an improved average customer retention level. -- U.S. cards in force rose 500K during the quarter. -- Outside the United States, 300K cards in force were added during the quarter on growth in network partner cards. o NET CARD FEES: Rose 2% due to higher cards in force. The average annual fee per proprietary card in force was $34 in 3Q'04 and 2Q '04 versus $35 in 3Q '03. o NET FINANCE CHARGE REVENUE: Increased 4% as 8% growth in average worldwide lending balances was partially offset by a decline in the portfolio yield. - The yield on the worldwide portfolio was 8.6% in 3Q '04 and 2Q '04 and 9.0% in 3Q '03. The decrease versus last year reflects an increase in the proportion of the U.S. portfolio on promotional rates, higher pay down rates and improved credit. o TRAVEL COMMISSIONS AND FEES: Increased 22% on a 23% increase in travel sales reflecting the Rosenbluth acquisition and improvement within the travel environment. Excluding the benefits of the Rosenbluth acquisition, growth in travel commissions and fees and travel sales was 10% and 7%, respectively. o OTHER COMMISSIONS AND FEES: Increased 21% on greater volume-related foreign exchange conversion fees, card fees and assessments. o TC INVESTMENT INCOME: Increased 7% on higher average investments and a higher pre-tax yield. TC sales decreased 3% versus last year. o OTHER REVENUES: Increased 5% due to higher publishing revenues, larger insurance premiums and greater merchant-related revenues. These increases were partially offset by lower interest income on investment and liquidity pools held within card funding vehicles, as well as lower ATM revenues resulting from the August sale of the remaining portion of the ATM business. o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased 28% on increased rewards costs, reflecting strong volume growth, a higher redemption rate, and the continued increase in cardmember loyalty program participation, as well as our continued focus on business building activities. o OTHER PROVISIONS FOR LOSSES AND CLAIMS: Increased significantly primarily due to the reconciliation of securitization-related lending receivable accounts, which resulted in a charge of $115MM (net of $32MM of reserves previously provided) for balances accumulated over the prior five year period as a result of a computational error. The amount of the error is immaterial to any of the quarters in which it occurred. In addition, the merchant-related reserves were reduced by approximately $60MM to reflect modifications in certain merchant agreements to mitigate loss exposure, as well as ongoing favorable credit experience with merchants. o CHARGE CARD INTEREST EXPENSE: Declined 6% due to a lower effective cost of funds, partially offset by higher average receivable balances. o HUMAN RESOURCES EXPENSE: Increased 15% versus last year due to merit increases, greater management incentive and employee benefit costs, and the Rosenbluth acquisition, which added 2,700 employees in 4Q '03. - The employee count at 9/04 of 65,600 was up 3,100 versus 9/03 and down 700 versus 6/04. o OTHER OPERATING EXPENSES: Increased 3% reflecting, in part, the impact of greater business and service volume-related costs and the Rosenbluth acquisition. -8- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW TRAVEL RELATED SERVICES (Cont'd) o CREDIT QUALITY: - Overall credit quality improved during the quarter. - The provision for losses on charge card products decreased 3%, despite higher volume, due to strong credit quality. - The lending provision for losses was down 13% vs. last year, despite growth in loans outstanding, due to exceptionally well-controlled credit. - Reserve coverage ratios, which are well in excess of 100% of past due balances, remained strong. - WORLDWIDE CHARGE CARD: * -- The net loss ratio declined versus last year, but increased slightly versus last quarter and remained near historically low levels; the past due rate improved versus last quarter and last year.
9/04 6/04 9/03 ------------ ------------ ------------- Net loss ratio as a % of charge volume 0.26% 0.25% 0.28% 90 days past due as a % of receivables 1.8% 1.9% 2.0%
-- Reserve coverage of past due accounts remained strong, despite a decline in the reserve balance due to the sustained improvement in credit quality.
9/04 6/04 9/03 ------------ ------------ ------------- Reserves (MM) $847 $864 $921 % of receivables 3.0% 3.0% 3.5% % of 90 day past due accounts 160% 163% 174%
- WORLDWIDE LENDING: ** -- The write-off rate improved versus last quarter and last year. Past due rates remained flat versus last quarter and decreased from last year.
9/04 6/04 9/03 ------------ ------------ ------------- Net write-off rate 4.1% 4.5% 5.1% 30 days past due as a % of loans 2.5% 2.5% 2.8%
-- Coverage of past due accounts was maintained at a high level.
9/04 6/04 9/03 ------------ ------------ ------------- Reserves (MM) $1,537 $1,535 $1,519 % of total loans 3.4% 3.4% 3.6% % of 30 day past due accounts 132% 136% 128%
* There are no off-balance sheet Charge Card securitizations. Therefore, "Owned basis" and "Managed basis" credit quality statistics for the Charge Card portfolio are the same. ** As previously described, this information is presented on a "Managed basis". "Owned basis" credit quality statistics are available in the Third Quarter 2004 Earnings Release on the TRS Selected Statistical Information pages. Credit trends are generally consistent under both reporting methods. -9- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (Preliminary) STATEMENTS OF INCOME (UNAUDITED, GAAP BASIS)
(millions) Quarters Ended Percentage September 30, Inc/(Dec) ----------------------------- ------------- 2004 2003 ----- ----- Revenues: Management and distribution fees $733 $606 21% Net investment income 581 551 5 Other revenues 400 368 8 ----- ----- Total revenues 1,714 1,525 12 ----- ----- Expenses: Provision for losses and benefits: Annuities 252 277 (9) Insurance 223 212 5 Investment certificates 45 46 (1) ----- ----- Total 520 535 (3) ----- ----- Human resources 612 511 20 Other operating expenses 325 255 27 ----- ----- Total expenses 1,457 1,301 12 ----- ----- Pre-tax income 257 224 14 Income tax provision 71 27 # ----- ----- Net income $186 $197 (6) ===== =====
# Denotes variance greater than 100% o NET INCOME: Declined 6%, reflecting the 3Q '03 favorable tax adjustment described below. Pre-tax income rose 14%. - 3Q '04 included: -- A net benefit of $24MM ($15M after-tax) resulting from DAC related adjustments arising from AEFA's annual third quarter review of underlying DAC assumptions and dynamics (see discussion on page 13); -- $11MM ($7MM after tax) of net investment gains; -- The impact of the 9/30/03 Threadneedle acquisition, which contributed approximately 7% to revenue growth and made a modest contribution to net income for the quarter; and -- Higher expenses related to various securities industry regulatory and legal matters. - 3Q '03 included: -- A $29MM reduction in tax expense due to adjustments related to the finalization of the 2002 tax return filed during the quarter and the publication of favorable technical guidance related to the taxation of dividend income; -- $13MM ($8MM after-tax) of net investment losses; and -- A net benefit of $2MM ($1MM after-tax) resulting from the annual third quarter DAC review (see discussion on page 13). o REVENUES: Increased 12% due to: - Increased management and distribution fees, - Higher net investment income, and - Greater insurance premiums. o PRE-TAX MARGIN: Was 15.0% in 3Q '04 and 2Q '04, and 14.7% in 3Q '03. o EFFECTIVE TAX RATE: Was 28% in 3Q '04 versus 34% in 2Q '04 and 12% in 3Q '03. - In 2Q '04, the effective tax rate reflected additional tax expenses primarily as a result of required amendments to prior-year tax returns. - In 3Q '03, the effective tax rate reflected benefits related to the finalization of the 2002 tax return filed during the quarter and the publication of favorable technical guidance related to the taxation of dividend income. -10- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (Cont'd) o SUPPLEMENTAL INFORMATION - NET REVENUES: In the following table, the Company presents AEFA's aggregate revenues on a basis that is net of provisions for losses and benefits because the Company manages the AEFA business and evaluates its financial performance, where appropriate, in terms of the "spread" on its products. An important part of AEFA's business is margin related, particularly the insurance, annuity and certificate businesses. One of the drivers for the AEFA business is the return on invested cash, primarily generated by sales of insurance, annuities and investment certificates, less provisions for losses and benefits on these products. These investments tend to be interest rate sensitive. Thus, GAAP revenues tend to be higher in periods of rising interest rates and lower in times of decreasing interest rates. The same relationship is true of provisions for losses and benefits, only it is more accentuated period-to-period because rates credited to customers' accounts generally reset at shorter intervals than the yield on underlying investments. The Company presents this portion of the AEFA business on a net basis to eliminate potentially less informative comparisons of period-to-period changes in revenue and provisions for losses and benefits in light of the impact of these changes in interest rates.
Quarters ended Percentage (millions) September 30, Inc/(Dec) ----------------------------- --------------- 2004 2003 ------ ------ Total GAAP Revenues $1,714 $1,525 12% Less: Provision for losses and benefits: Annuities 252 277 Insurance 223 212 Investment certificates 45 46 ------ ------ Total 520 535 ------ ------ Net Revenues $1,194 $ 990 20 ====== ======
- Spreads within the annuity and insurance products were up versus last year and last quarter. Certificates spreads were down versus last year and last quarter. - On a net revenue basis, the pre-tax margin was 21.5% in 3Q '04 versus 21.4% in 2Q '04 and 22.6% in 3Q '03. o ASSETS OWNED, MANAGED AND ADMINISTERED:
Percentage (billions) September 30, Inc/(Dec) ----------------------------- --------------- 2004 2003 ------ ------ Assets owned (excluding separate accounts) $59.6 $53.3 12% Separate account assets 32.4 27.6 17 Assets managed 236.0 213.3 11 Assets administered 55.3 45.6 21 ------ ------ Total $383.3 $339.8 13 ====== ======
- Upon adoption of FIN 46 at 12/31/03, $0.5B of additional assets from variable interest entities (VIE) were consolidated. In addition, $3.8B of related assets within structured investments previously reported as Assets Managed for Institutions were excluded due to the consolidation of the related VIE structures. o ASSET QUALITY: - Overall, credit quality continued to improve as default rates have stabilized and leverage ratios have declined. - Non-performing assets relative to invested assets (excluding short-term cash positions and including the impact of FIN 46) were 0.03% and were more than 6x covered by reserves, including those related to the impairment of securities. - High-yield investments (excluding unrealized appreciation/depreciation and the impact of FIN 46) totaled $2.9B, or 7% of the total investment portfolio at 9/04, compared with 7% at 6/04 and 6% at 9/03. -- Excluding unrealized appreciation/depreciation, but including the impact of FIN 46, high-yield investments totaled $3.1B, or 7% of the total investment portfolio at 9/04, compared with $3.2B or 8% at 6/04. - The SFAS No. 115 related mark-to-market adjustment (including the impact of FIN 46 and reported in assets pre-tax) was appreciation of $0.9B at 9/04, $0.05B at 6/04 and $1.2B at 9/03. -11- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (Cont'd) O MANAGEMENT AND DISTRIBUTION FEES: The increase of 21% in 3Q '04 was due to a 34% increase in management fees and a 7% increase in distribution fees. The management fee increase resulted from higher average assets under management, reflecting the impact of Threadneedle, improvement in equity market valuations versus last year and net asset inflows. Distribution fees increased on greater mutual fund fees, in particular SPS wrap-fees, partially offset by lower limited partnership and brokerage-related revenues. - ASSETS MANAGED:
Percentage (billions) September 30, Inc/(Dec) ------------------------------- --------------- 2004 2003 ------ ------ Assets managed for individuals $108.6 $96.6 12% Assets managed for institutions 127.4 116.7 9 Separate account assets 32.4 27.6 17 ------ ------ Total $268.4 $240.9 11 ====== ======
-- The increase in managed assets since 9/03 resulted from market appreciation and foreign currency translation of $24.3B and net inflows of $7.0B. For the twelve months ended 9/04, net inflows at Threadneedle and within the retail channel were partially offset by net institutional outflows, excluding Threadneedle. - Flows for the year exclude the impact of the adoption of FIN 46 as of 12/31/03, which resulted in a $3.8B decrease in Assets Managed for Institutions due to the consolidation of the related VIE structures. -- The $1.2B increase in managed assets during 3Q `04 reflects net inflows of $1.8B from net inflows within the retail channel and, due to Threadneedle, in the institutional business, partially offset by a negative foreign currency translation impact and market appreciation totaling a net $0.6B. o NET INVESTMENT INCOME: - Net investment income increased 5% versus last year. In 3Q '04, $25MM of investment gains were partially offset by $14MM of investment losses. The investment gains include a $7MM pre-tax benefit primarily reflecting lower than expected losses related to management's 1Q '04 decision to liquidate a secured loan trust. Results were negatively impacted by the effect of depreciation this year versus appreciation last year in the S&P 500 on the value of options hedging outstanding stock market certificates and equity indexed annuities, which was offset in the related provisions. 3Q '03 included $13MM of net investment losses. - Average invested assets of $45.0B (including unrealized appreciation/depreciation and the impacts of FIN 46) rose 2% versus $44.1B in 3Q '03, reflecting the cumulative benefit of sales of the underlying fixed rate products over the past two years, partially offset by lower unrealized appreciation versus last year. - The average yield on invested assets (excluding realized and unrealized appreciation/depreciation and including the impacts of FIN 46) was 5.2% in 3Q '04 versus 5.1% in 3Q `03. o PRODUCT SALES: - Total gross cash sales from all products were up 11% versus 3Q '03. Branded advisor-generated sales increased 2% on a cash basis, and 6% on the internally used "gross dealer concession" (GDC) basis, a commonly used financial services industry measure of the sales production of the advisor channel. - Total mutual fund cash sales increased 10% on advisor-related sales growth and the benefits of Threadneedle activities. Both proprietary sales, including the benefit of the Threadneedle acquisition, and non-proprietary sales were up versus last year. A significant portion of non-proprietary sales continued to occur in "wrap" accounts (which are included in assets managed). Within proprietary funds: -- Sales of equity funds increased, while bond funds declined and money market funds were flat. - Total annuity cash sales increased 1% as an increase in variable product sales was substantially offset by a decrease in fixed product sales. - Total certificate cash sales increased 16% due to higher sales of certificates sold to clients outside the U.S., through the joint venture between AEFA and AEB, and stronger advisor sales levels. - Total cash sales of insurance products rose 21% reflecting higher property-casualty sales, in part due to sales through Costco, and higher sales of life insurance products. -12- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW AMERICAN EXPRESS FINANCIAL ADVISORS (Cont'd) o PRODUCT SALES (CONT'D): - Total institutional cash sales more than doubled reflecting the benefit of the Threadneedle activities. - Total other cash sales decreased 38% due to lower contributions and lower new accounts sales in the 401(k) business and lower limited partnership product sales. - Advisor product sales (GDC basis) generated through financial planning and advice services were 75% of total sales in 3Q '04, 2Q '04 and 3Q `03. o OTHER REVENUES: Were up 8% on strong property-casualty and higher life insurance-related revenues. - Financial planning and advice services fees of $28MM decreased 20% versus 3Q '03, reflecting the timing of plan delivery and fee recognition. o PROVISIONS FOR LOSSES AND BENEFITS: Annuity product provisions decreased 9% due to lower crediting rates and the effect of depreciation in the S&P 500 on equity indexed annuities this year versus appreciation last year, partially offset by a higher average inforce level. Insurance provisions increased 5% as higher inforce levels were partially offset by lower life insurance crediting rates. Certificate provisions declined 1% as the effect on the stock market certificate product of depreciation in the S&P 500 this year versus appreciation last year was partially offset by higher average reserves and interest crediting rates. o HUMAN RESOURCES: Expenses increased 20% reflecting the effects of the Threadneedle acquisition, higher field force compensation-related costs and higher salary and employee benefit costs. The increase also reflects a $9MM decrease in favorable DAC adjustments* this year versus last year. The average number of employees (excluding financial advisors and Threadneedle) was flat. - TOTAL ADVISOR FORCE: 12,071 at 9/04; up 329 advisors, or 3%, versus 9/03 and up 128 advisors versus 6/04. -- The increase in advisors versus 6/04 resulted from higher appointments coupled with lower terminations. -- Veteran advisor retention rates remain strong. -- Total production and advisor productivity were up versus last year. - The total number of clients was flat versus last year due to the purging of inactive accounts during the quarter; client acquisitions fell 5% and accounts per client were up 2%. Client retention was 94%. o OTHER OPERATING EXPENSES: Increased 27% versus last year reflecting the effect of the Threadneedle acquisition, costs related to various securities industry regulatory and legal matters, and higher marketing and promotion expense. These were partially offset by a $31MM favorable benefit from DAC adjustments* this year versus last year. * As disclosed in prior reports, AEFA annually performs a comprehensive review and updates various DAC assumptions, such as persistency, mortality rate, interest margin and maintenance expense level assumptions, in the third quarter of each year. The impact on results of operations of changing assumptions with respect to the amortization of DAC can be either positive or negative in any particular period. As a result of these reviews, AEFA took actions in both 2004 and 2003 that impacted the DAC balance and expenses. - In 3Q '04, these actions resulted in a net $24MM DAC amortization expense reduction ($13MM reduction in Human Resources expense and $11MM decrease in Other Operating expense) reflecting: - A $27MM DAC amortization reduction reflecting lower than previously assumed surrender and mortality rates on variable annuity products, higher surrender charges collected on Universal and Variable Universal Life products and higher than previously assumed interest rate spreads on annuity and Universal Life products; - A $3MM DAC amortization reduction reflecting the extension of the mean reversion period by one year; and - A $6MM DAC amortization increase primarily reflecting a reduction in estimated future premiums on variable annuity products. - In 3Q '03, these actions resulted in a net $2MM DAC amortization expense reduction ($22MM reduction in Human Resources expense and $20MM increase in Other Operating expense) reflecting: - A $106MM DAC amortization reduction resulting from extending 10-15 year amortization periods for certain Flex Annuity products to 20 years based on current measurements of meaningful life in which exchanges of Flex Annuity contracts for other AEFA variable annuity contracts are treated as continuations rather than terminations; - A $92MM DAC amortization increase resulting from the recognition of premium deficiency on AEFA's Long-Term Care Products; and - A $12MM net DAC amortization increase across AEFA's Universal Life, Variable Universal Life and annuity products, primarily reflecting lower than previously assumed interest rate spreads, separate account fee rates, and account maintenance expenses. -13- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW AMERICAN EXPRESS BANK (Preliminary) Statements of Income (Unaudited)
(millions) Quarters Ended Percentage September 30, Inc/(Dec) ---------------------------------- --------------- 2004 2003 ----- ----- Net revenues: Interest income $132 $139 (5)% Interest expense 56 52 8 ----- ----- Net interest income 76 87 (13) Commissions and fees 69 58 20 Foreign exchange income and other revenues 60 54 10 ----- ----- Total net revenues 205 199 3 ----- ----- Expenses: Human resources 71 71 (1) Other operating expenses 74 69 7 Provision for losses 11 20 (46) Restructuring charges - (2) # ----- ----- Total expenses 156 158 (2) ----- ----- Pre-tax income 49 41 21 Income tax provision 17 14 26 ----- ----- Net income $32 $27 18 ===== =====
# Denotes variance greater than 100%. o Net income increased 18% as a lower provision for losses and higher net revenues were partially offset by higher operating expenses. - 3Q '03 includes a net pretax benefit of $2MM ($1MM after-tax) representing an adjustment to the 3Q '02 restructuring charge for severance and other costs. o Net revenues rose 3%. - Commissions and fees increased 20% due to higher volumes in the Financial Institutions Group (FIG) and Private Banking. - Net interest income decreased 13% primarily due to lower levels of Personal Financial Services (PFS) loans, reflecting AEB's prior decision to temporarily curtail loan origination in Hong Kong, and lower spreads in the investment portfolio. - Foreign exchange income and other revenues increased 10% due to higher joint venture revenues in Egypt and gains on sales of securities. o Human resources expenses were down 1% due to severance costs recorded in 3Q '03 related to the Bank's downsizing of its operations in Greece. o Other operating expenses increased 7% reflecting higher technology-related expenses and higher advertising and promotion costs, partially offset by a security gain resulting from the sale of securities received from a settlement with a FIG client. o The provision for losses decreased 46% due to lower PFS loan volumes and an improvement in bankruptcy related write-offs in the consumer lending portfolio in Hong Kong. o The pre-tax margin was 23.9% in 3Q '04 versus 20.7% in 2Q '04 and 20.6% in 3Q '03. o The effective tax rate was 35% in 3Q '04 versus 33% in 2Q '04 and 34% in 3Q '03. o In 3Q '04, AEB declared dividends totaling $77MM. While this caused a decline in the capital adequacy ratios from 6/04, AEB remained "well-capitalized".
9/04 6/04 9/03 Well-Capitalized ---------- ---------- ---------- -------------------- Tier 1 10.8% 12.0% 10.5% 6.0% Total 10.6% 11.8% 10.8% 10.0% Leverage Ratio 5.7% 5.9% 6.0% 5.0%
-14- AMERICAN EXPRESS COMPANY THIRD QUARTER 2004 OVERVIEW AMERICAN EXPRESS BANK (Cont'd) o EXPOSURES - AEB's loans outstanding were $6.4B at 9/04 versus $6.5B at 6/04 and $6.2B at 9/03. -- Loan activity:
(millions) vs. 6/04 vs. 9/03 (a) -------------- -------------- Consumer and Private Banking loans $(40) $ - Financial Institution loans +20 +300 Corporate Banking loans (30) (100)
(a) During 4Q `03, approximately $100MM of loans previously classified as "Other" were reclassified to the consumer category. These loans represent non-PFS consumer loans that are an ongoing part of AEB's consumer business. The statistics above conform to the current period presentation. -- % of Total loans:
9/04 6/04 9/03 ------ ------ ------ Consumer and Private Banking loans 68% 68% 67% Financial Institution loans 31% 30% 28% Corporate Banking loans 1% 2% 5%
- In addition to the loan portfolio, there are other banking activities, such as forward contracts, various credit-related commitments and market placements, which added approximately $7.5B to the credit exposures at 9/04 versus $7.7B at 6/04 and $8.0B at 9/03. Of the $7.5B of additional exposures at 9/04, $5.2B were relatively less risky cash and securities related balances. o ASSETS MANAGED - For the twelve months ended 9/04, growth in Private Banking, FIG and PFS managed assets in total reflected net asset inflows, market appreciation and a positive foreign currency translation impact. - During 3Q '04, Private Banking, FIG and PFS managed assets in total increased, reflecting net asset inflows and a positive foreign currency translation impact, slightly offset by market depreciation. o LOANS - Total non-performing loans* were $32MM at 9/04, compared to $50MM at 6/04 and $84MM at 9/03 as AEB continues to wind down its Corporate Banking business. The decreases reflect loan payments and write-offs, partially offset by net downgrades. - Other non-performing assets were $1MM at 9/04 versus $2MM at 6/04 and $15MM at 9/03. - The total credit loss reserve, including reserves for consumer loans, was $98MM at 9/04, compared with $105MM at 6/04 and $125MM at 9/03, and was allocated as follows:
(millions) 9/04 6/04 9/03 ---- ----- ----- Loans $96 $103 $117 Other assets, primarily matured foreign exchange and other derivative contracts 1 1 6 Other credit-related commitments 1 1 2 ---- ---- ---- Total credit loss reserve $98 $105 $125 ==== ==== ====
-- Loan loss reserve coverage of non-performing loans* was 303% at 9/04, 205% at 6/04 and 138% at 9/03. * AEB defines a non-performing loan as any loan (other than certain smaller-balance consumer loans) on which the accrual of interest is discontinued because the contractual payment of principal or interest has become 90 days past due or if, in management's opinion, the borrower is unlikely to meet its contractual obligations. For smaller-balance consumer loans related to the Personal Financial Services business, management establishes reserves it believes to be adequate to absorb credit losses in the portfolio. Generally, these loans are written off in full when an impairment is determined or when the loan becomes 120 or 180 days past due, depending on loan type. - Management formally reviews the loan portfolio and evaluates credit risk throughout the year. This evaluation takes into consideration the financial condition of the borrowers, fair market value of collateral, status of delinquencies, historical loss experience, and industry trends and the impact of current economic conditions. As of September 30, 2004, management considers the credit loss reserve to be appropriate. -15- INFORMATION RELATING TO FORWARD LOOKING STATEMENTS THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "OPTIMISTIC," "INTEND," "PLAN," "AIM," "WILL," "MAY," "SHOULD," "COULD," "WOULD," "LIKELY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO: THE COMPANY'S ABILITY TO IMPROVE ITS OPERATING EXPENSE TO REVENUE RATIO BOTH IN THE SHORT-TERM AND OVER TIME, WHICH WILL DEPEND IN PART ON THE EFFECTIVENESS OF REENGINEERING AND OTHER COST-CONTROL INITIATIVES, AS WELL AS FACTORS IMPACTING THE COMPANY'S REVENUES; THE COMPANY'S ABILITY TO COST EFFECTIVELY MANAGE AND EXPAND CARDMEMBER BENEFITS, INCLUDING CONTAINING THE GROWTH OF ITS MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES; THE COMPANY'S ABILITY TO ACCURATELY ESTIMATE THE PROVISION FOR THE COST OF THE MEMBERSHIP REWARDS PROGRAM; THE COMPANY'S ABILITY TO GROW ITS BUSINESS AND MEET OR EXCEED ITS RETURN ON SHAREHOLDERS' EQUITY TARGET BY REINVESTING APPROXIMATELY 35% OF ANNUALLY-GENERATED CAPITAL, AND RETURNING APPROXIMATELY 65% OF SUCH CAPITAL TO SHAREHOLDERS, OVER TIME, WHICH WILL DEPEND ON THE COMPANY'S ABILITY TO MANAGE ITS CAPITAL NEEDS AND THE EFFECT OF BUSINESS MIX, ACQUISITIONS AND RATING AGENCY REQUIREMENTS; THE ABILITY OF THE COMPANY TO GENERATE SUFFICIENT REVENUES FOR EXPANDED INVESTMENT SPENDING AND TO ACTUALLY SPEND SUCH FUNDS TO THE EXTENT AVAILABLE, AND THE ABILITY TO CAPITALIZE ON SUCH INVESTMENTS TO IMPROVE BUSINESS METRICS; CREDIT RISK RELATED TO CONSUMER DEBT, BUSINESS LOANS, MERCHANT BANKRUPTCIES AND OTHER CREDIT EXPOSURES BOTH IN THE U.S. AND INTERNATIONALLY; VOLATILITY IN THE VALUATION ASSUMPTIONS FOR THE INTEREST-ONLY (I/O) STRIP RELATING TO TRS' LENDING SECURITIZATIONS; FLUCTUATION IN THE EQUITY AND FIXED INCOME MARKETS, WHICH CAN AFFECT THE AMOUNT AND TYPES OF INVESTMENT PRODUCTS SOLD BY AEFA, THE MARKET VALUE OF ITS MANAGED ASSETS, AND MANAGEMENT, DISTRIBUTION AND OTHER FEES RECEIVED BASED ON THE VALUE OF THOSE ASSETS; AEFA'S ABILITY TO RECOVER DEFERRED ACQUISITION COSTS (DAC), AS WELL AS THE TIMING OF SUCH DAC AMORTIZATION, IN CONNECTION WITH THE SALE OF ANNUITY, INSURANCE AND CERTAIN MUTUAL FUND PRODUCTS; CHANGES IN ASSUMPTIONS RELATING TO DAC, WHICH COULD IMPACT THE AMOUNT OF DAC AMORTIZATION; THE ABILITY TO IMPROVE INVESTMENT PERFORMANCE IN AEFA'S BUSINESSES, INCLUDING ATTRACTING AND RETAINING HIGH-QUALITY PERSONNEL; THE SUCCESS, TIMELINESS AND FINANCIAL IMPACT, INCLUDING COSTS, COST SAVINGS AND OTHER BENEFITS INCLUDING INCREASED REVENUES, OF REENGINEERING INITIATIVES BEING IMPLEMENTED OR CONSIDERED BY THE COMPANY, INCLUDING COST MANAGEMENT, STRUCTURAL AND STRATEGIC MEASURES SUCH AS VENDOR, PROCESS, FACILITIES AND OPERATIONS CONSOLIDATION, OUTSOURCING (INCLUDING, AMONG OTHERS, TECHNOLOGIES OPERATIONS), RELOCATING CERTAIN FUNCTIONS TO LOWER-COST OVERSEAS LOCATIONS, MOVING INTERNAL AND EXTERNAL FUNCTIONS TO THE INTERNET TO SAVE COSTS, AND PLANNED STAFF REDUCTIONS RELATING TO CERTAIN OF SUCH REENGINEERING ACTIONS; THE ABILITY TO CONTROL AND MANAGE OPERATING, INFRASTRUCTURE, ADVERTISING AND PROMOTION AND OTHER EXPENSES AS BUSINESS EXPANDS OR CHANGES, INCLUDING BALANCING THE NEED FOR LONGER-TERM INVESTMENT SPENDING; THE POTENTIAL NEGATIVE EFFECT ON THE COMPANY'S BUSINESSES AND INFRASTRUCTURE, INCLUDING INFORMATION TECHNOLOGY, OF TERRORIST ATTACKS, DISASTERS OR OTHER CATASTROPHIC EVENTS IN THE FUTURE; THE IMPACT ON THE COMPANY'S BUSINESSES RESULTING FROM CONTINUING GEOPOLITICAL UNCERTAINTY; THE OVERALL LEVEL OF CONSUMER CONFIDENCE; CONSUMER AND BUSINESS SPENDING ON THE COMPANY'S TRAVEL RELATED SERVICES PRODUCTS, PARTICULARLY CREDIT AND CHARGE CARDS AND GROWTH IN CARD LENDING BALANCES, WHICH DEPEND IN PART ON THE ABILITY TO ISSUE NEW AND ENHANCED CARD PRODUCTS AND INCREASE REVENUES FROM SUCH PRODUCTS, ATTRACT NEW CARDHOLDERS, CAPTURE A GREATER SHARE OF EXISTING CARDHOLDERS' SPENDING, SUSTAIN PREMIUM DISCOUNT RATES ON ITS CARD PRODUCTS IN LIGHT OF MARKET PRESSURES, INCREASE MERCHANT COVERAGE, RETAIN CARDMEMBERS AFTER LOW INTRODUCTORY LENDING RATES HAVE EXPIRED, AND EXPAND THE GLOBAL NETWORK SERVICES BUSINESS; THE TRIGGERING OF OBLIGATIONS TO MAKE PAYMENTS TO CERTAIN CO-BRAND PARTNERS, MERCHANTS, VENDORS AND CUSTOMERS UNDER CONTRACTUAL ARRANGEMENTS WITH SUCH PARTIES UNDER CERTAIN CIRCUMSTANCES; AEFA'S ABILITY TO DEVELOP AND ROLL OUT NEW AND ATTRACTIVE PRODUCTS TO CLIENTS IN A TIMELY MANNER AND EFFECTIVELY MANAGE THE ECONOMICS IN SELLING A GROWING VOLUME OF NON-PROPRIETARY MUTUAL FUNDS AND OTHER RETAIL FINANCIAL PRODUCTS TO CLIENTS; SUCCESSFULLY CROSS-SELLING FINANCIAL, TRAVEL, CARD AND OTHER PRODUCTS AND SERVICES TO THE COMPANY'S CUSTOMER BASE, BOTH IN THE UNITED STATES AND INTERNATIONALLY; A DOWNTURN IN THE COMPANY'S BUSINESSES AND/OR NEGATIVE CHANGES IN THE COMPANY'S AND ITS SUBSIDIARIES' CREDIT RATINGS, WHICH COULD RESULT IN CONTINGENT PAYMENTS UNDER CONTRACTS, DECREASED LIQUIDITY AND HIGHER BORROWING COSTS; FLUCTUATIONS IN INTEREST RATES, WHICH IMPACT THE COMPANY'S BORROWING COSTS, RETURN ON LENDING PRODUCTS AND SPREADS IN THE INSURANCE, ANNUITY AND INVESTMENT CERTIFICATE BUSINESSES; CREDIT TRENDS AND THE RATE OF BANKRUPTCIES, WHICH CAN AFFECT SPENDING ON CARD PRODUCTS, DEBT PAYMENTS BY INDIVIDUAL AND CORPORATE CUSTOMERS AND BUSINESSES THAT ACCEPT THE COMPANY'S CARD PRODUCTS AND RETURNS ON THE COMPANY'S INVESTMENT PORTFOLIOS; BANKRUPTCIES, RESTRUCTURINGS OR SIMILAR EVENTS AFFECTING THE AIRLINE OR ANY OTHER INDUSTRY REPRESENTING A SIGNIFICANT PORTION OF TRS' BILLED BUSINESS, INCLUDING ANY POTENTIAL NEGATIVE EFFECT ON PARTICULAR CARD PRODUCTS AND SERVICES AND BILLED BUSINESS GENERALLY THAT COULD RESULT FROM THE ACTUAL OR PERCEIVED WEAKNESS OF KEY BUSINESS PARTNERS IN SUCH INDUSTRIES; RISKS ASSOCIATED WITH THE COMPANY'S COMMITMENT TO DELTA AIR LINES TO PREPAY $500 MILLION FOR THE FUTURE PURCHASES OF DELTA SKYMILES REWARDS POINTS AND TO LOAN $100 MILLION TO DELTA; FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES; POLITICAL OR ECONOMIC INSTABILITY IN CERTAIN REGIONS OR COUNTRIES, WHICH COULD AFFECT LENDING AND OTHER COMMERCIAL ACTIVITIES, AMONG OTHER BUSINESSES, OR RESTRICTIONS ON CONVERTIBILITY OF CERTAIN CURRENCIES; CHANGES IN LAWS OR GOVERNMENT REGULATIONS; THE COSTS AND INTEGRATION OF ACQUISITIONS; AND OUTCOMES AND COSTS ASSOCIATED WITH LITIGATION AND COMPLIANCE AND REGULATORY MATTERS. A FURTHER DESCRIPTION OF THESE AND OTHER RISKS AND UNCERTAINTIES CAN BE FOUND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, AND ITS OTHER REPORTS FILED WITH THE SEC. -16- -----END PRIVACY-ENHANCED MESSAGE-----